Proration credit
Overview
Zuora allows you to prorate the credit issued back to a customer. This article explains how your billing rules affect the amount of prorated credit issued.
Proration Credit
There are situations where a credit needs to be issued back to a customer who has paid for a service period in advance. For instance, if a customer cancels a subscription early or removes a product from their subscription, you can choose to issue a credit for the unused service period.
For example, imagine a scenario where:
- the bill cycle day of the subscription rate plan charge is set as Default from Customer Account
- the bill cycle day of the account is set as 1st of the month
- the subscription billing trigger date is 10/1/2014
- the billing period of the rate plan is set to quarterly
- the rate plan is set to align to subscription or align to term such that the first full quarter period is 10/1/2014 to 12/31/2014
- the subscription is canceled early on 10/15/2014
The amount of prorated credit issued depend on the combination of the Prorate recurring charges for partial period? and Bill recurring charges for partial month (with monthly based billing periods)? settings, as specified in Billing > Define Billing Rules. In all cases the first invoice charges for the full quarterly service period from the subscription trigger date to the bill cycle day, 10/1/2014 – 12/31/2014.
For charges involving in proration credit, the charge names displayed as line items on invoices vary in different situations:
- If a charge is billed for a partial month or period, the charge name ends with Proration.
- If a charge is partially credited back, the charge name ends with Proration Credit.
- If a charge is fully credited back, the charge name ends with Credit.
Prorate for Partial Month and Partial Period
Bill recurring charges for partial month (with monthly based billing periods)? = Yes, Prorate recurring charges for partial period? = Yes
The invoice shows a prorated credit for the partial month and partial period. In this scenario, the next invoice would show a credit for the period 10/15/2014 – 12/31/2014.
Prorate for Partial Period
Bill recurring charges for partial month (with monthly based billing periods)? = No, Prorate recurring charges for partial period? = Yes
The invoice only shows a prorated credit any full months in the partial period. In this scenario, the next invoice would show a credit for the period 11/1/2014 – 12/31/2014.
Do no prorate
Bill recurring charges for partial month (with monthly based billing periods)? = No, Prorate recurring charges for partial period? = No
No prorated credit is issued.
It is not possible to set Bill recurring charges for partial month (with monthly based billing periods)? to Yes and Prorate recurring charges for partial period? to No, as this is an invalid combination.
Credit for Prorated Discounts
When your customers shorten or cancel regular charges in their subscriptions and the regular charges have fixed-amount discount charges applied to them, you need to issue credits back for both charge types. You can choose how to handle the discount charge through the “Credit for Prorated Discounts (Fixed-amount Discount Charge Only)” billing rule.
- Select Yes if you want to prorate the discount your customer can enjoy.
- Select No if you want your customer to enjoy the original discount as much as possible. This is the default option.
Let’s use the following scenarios to explain the impacts of the different options. Assume all actions happen on the same day.
Scenario 1
- Your customer commits to a one-year subscription with $1,200 regular charge and a $720 fixed amount discount.
- Invoice showing the customer should pay: $480 = $1,200 - $720
If your customer shortens the subscription to 3 months, on the new invoice:
| Billing rule set to No | Billing rule set to Yes |
|---|---|
| Proration credit for regular charge is -$900 = $1,200/12 * 3 - $1,200 | Proration credit for regular charge is -$900 = $1,200/12 * 3 - $1,200 |
| Proration credit for discount charge is $420: The greater value of ($720 - $1,200/12 *3) and 0 | Proration credit for discount charge is $540 = $720 - $720/12*3 |
| You need to credit back $480 to your customer. | You need to credit back $360 to your customer. |
If your customer shortens the subscription to 8 months, on the new invoice:
| Billing rule set to No | Billing rule set to Yes |
|---|---|
| Proration credit for regular charge is -$400 = $1,200/12 * 8 - $1,200 | Proration credit for regular charge is -$400 = $1,200/12 * 8 - $1,200 |
| Proration credit for discount charge is 0: The greater value of ($720 - $1,200/12 *8) and 0 | Proration credit for discount charge is $240 = $720 - $720/12*8 |
| You need to credit back $400 to your customer. | You need to credit back $160 to your customer. |
If your customer cancels the subscription, on the new invoice:
| Same result no matter the billing rule is set to Yes or No |
|---|
|
Proration credit for regular charge is -$1,200 Proration credit for discount charge is $720 You need to credit back $480 to your customer. |
Scenario 2
- Your customer commits to a one-year subscription with $1,200 regular charge and a $1,200 fixed amount discount.
- Invoice showing the customer should pay: 0 = $1,200 - $1,200
If your customer shortens the subscription to 8 months, on the new invoice:
| Billing rule set to No | Billing rule set to Yes |
|---|---|
| Proration credit for regular charge is -$400 = $1,200/12 * 8 - $1,200 | Proration credit for regular charge is -$400 = $1,200/12 * 8 - $1,200 |
| Proration credit for discount charge is $400: The greater value of ($1,200 - $1,200/12 *8) and 0 | Proration credit for discount charge is $400 = $1,200 - $1,200/12*8 |
In this case, no matter your customer shortens the subscription by how many months, the result is always the same. The credit the customer can get is $0.
Enablement
To enable this billing rule:
- Click your username at the upper right and navigate to Settings > Billing.
- On the Billing Settings page, click Define Billing Rules.
- On the Billing Rules page, click edit.
- Select Yes for Credit for Prorated Discounts (Fixed-amount Discount Charge Only).
- Click save.
Best practices
If you have enabled the Credit for Prorated Discounts (Fixed-amount Discount Charge Only) billing rule, the best practices to use discount charges are as follows:
- One fixed-amount discount charge only applies to one regular charge instead of multiple regular charges.
- The discount charge and the applied-to regular charge have the same bill cycle day, and the bill cycle day never changes.
- The discount charge has the same activation or cancelation date as the applied-to regular charge.