Cancel subscriptions with refund and write-off

Option 1 (Recommended): Refund is not provided when a customer cancels

Two examples are given. In Example 1, the invoice is fully paid, whereas in Example 2, the invoice is unpaid.

Example 1: A customer paid for the period of March 1 – March 31, then called on March 15 to cancel. The effective date for the cancellation should be March 31, and the customer will have access to the system until the end of March 31. 

To perform a cancellation without providing a refund, take the following actions:

1. Perform a subscription cancellation that is effective on the last day of the current invoice period. Depending on your tenant type, perform one of the following tasks:

   • For Orders or Orders Harmonization tenant users, see Cancel subscriptions.

   • For Subscribe and Amend tenant users, see Cancel subscriptions.

2. Revoke the customer’s access to the subscribed product or service on the effective date of the cancellation.

Example 2:  A customer didn't pay for the period of March 1 – March 31, then called on March 15 to cancel. The effective date for the cancellation should be March 31, and the customer will have access to the system until the end of March 31. 

For Orders or Orders Harmonization tenant users, you can write off all unpaid invoices when performing the cancellation.

To perform a cancellation and write off all unpaid invoices, take the following actions:

1. Perform a subscription cancellation that is effective on the last day of the current invoice period. For more information, see Cancel subscriptions and write off all unpaid invoices. 
2. Revoke the customer’s access to the subscribed product or service on the effective date of the cancellation.

Option 2: Refund is provided for undelivered services

Example: A customer paid $100 for service for the period of April 1 – April 30. The customer called on April 16 to cancel.

• The effective date of the cancellation should be April 16.
• The customer’s access to the system is revoked immediately.
• The negative invoice created will be for -$50 for the period April 16 – April 30.
• Net revenue for this series of invoices will be $50 for the period April 1 – April 15.
  • Initial invoice = $100 for the period April 1 – April 30
  • Negative cancellation invoice = -$50 for the period of April 16 – April 30.

Depending on your tenant type, perform one of the following tasks:

• For Orders or Orders Harmonization tenant users, to perform a cancellation and provide a refund, you can enter the refund amount $50 when performing the cancellation. For steps and more refund examples, see Cancel subscriptions and refund end customers automatically.
• For Subscribe and Amend users, to perform a cancellation and provide a refund, take the following actions:
  1. Perform a subscription cancellation that is effective on the day the customer cancelled. For more information, see Cancel subscriptions.
  2. Revoke the customer’s access to the subscribed product or service, effective immediately.
  3. In the next bill run, Zuora creates a negative prorated invoice that reflects the undelivered portion of service. 
  4. This negative invoice is used to offset any undelivered revenue from the initial invoice.
  5. Transfer the negative invoice to the credit balance.
  6. This increases the balance of this invoice to $0.
  7. Refund the credit balance to the customer. If a customer is still paying for other uncancelled services from your business, you can choose to hold the credit balance to offset a future invoice.

Option 1: Cancel the subscription at the start of the current invoice period

Use this option when your company has a short collections period prior to write-off, such as in most B2C companies.

In this option, the subscription is retroactively cancelled to the start of the current invoice period. This approach is the most common and simplest to implement. However, following this approach results in a full write-off of the existing invoice. This also introduces a variance between the true subscription term and the recorded subscription term in Zuora for the cancelled customers. For most B2C businesses, this variance is very small and is deemed immaterial, making this the more scalable and thus preferred approach.

To perform a cancellation at the start of the current invoice period, take the following actions:

1. Perform a subscription cancellation that is effective at the start of the current invoice period.
2. Revoke the customer’s access to the subscribed product/service immediately.
3. The Zuora application creates a negative invoice in the next bill run.
   This negative invoice is used to offset all revenue from the original invoice.
4. Transfer the negative invoice to credit balance.
   This increases the balance of this invoice to $0.
5. Apply the credit balance to the outstanding invoice. This reduces the balance of the original invoice to $0.
   This step can be automated using payment runs for accounts using an electronic payment method.

Option 2: Cancel the subscription on the date of the write-off

Use this option when your company has a long collections period prior to write-off, such as in most B2B companies. There is a need to differentiate between services delivered but unpaid and services not delivered. This option is a 2-step process.

In this option, the subscription is cancelled using the date of the write-off. This approach is more complex to implement, but provides an option to partially write-off an invoice. Additionally, the subscription terms will reflect the true subscription terms.

For companies with relatively small numbers of large invoices, each invoice is managed individually, and collection times are often long. These companies might not want to write off the entirety of an invoice as the value of delivered but unpaid services might be significant enough to warrant further collection efforts.