Managing Contract Terms

As your business grows and you engage with high-value customers, each new prospect introduces challenges, such as unique price points, terms, and conditions. Offering contractual support, including lock-in periods at the subscription level, can address these needs. However, managing complex billing workflows—such as automatic renewals and cancellations tailored to specific subscription terms—can be a significant challenge.

Chargebee enables you to retain customers in subscriptions for a specific number of billing cycles. You can define contract terms for each subscription and automate all the subscription workflows based on their respective terms. Chargebee supports the following workflows for managing contract terms. You can:

• Override the price of a plan at the subscription level.
• Specify if the subscription being created is under contract.
• Define the contract renewal terms.
• Define the cancellation terms.
• Apply a termination fee.

Chargebee allows you to create subscriptions with flexible contract terms based on your plan's billing frequency and the number of billing cycles. Here's a simple formula to understand how a contract term is calculated:

Here are some examples:

Example 1:

To create an annual contract and charge the customer on a monthly basis, create a monthly plan (that generates invoices once in every month) and configure the number of billing cycles for the subscription to be 12.

1 Year Contract Term = 1 month plan X 12 billing cycles

Example 2:

To create a 3 years contract and charge the customer on a quarterly basis, create a quarterly plan (that generates invoices once in 3 months) and configure the number of billing cycles for the subscription to be 12.

3 Years Contract Term = 3 months plan X 12 billing cycles

Let us look at how Chargebee helps you with automatic renewal and cancellation for subscriptions that are created with contract terms.

Renewal Workflow

Introducing contract terms to subscriptions unlocks more business opportunities. However, each one of these subscriptions are unique based on your business needs and the customer's need. Renewing these subscriptions manually could get more tedious.

You can configure automatic renewal of subscriptions with contract terms in Chargebee. You can move customers from a subscription with a contract to a subscription without a contract, without having to create new subscriptions. You can define rules in Chargebee for how subscriptions under contract should renew, such as:

• Renewing the subscription for the same duration
• Renewing the subscription for a different duration
• Canceling the contract and the subscription
• Canceling the contract but continuing the subscription

This not only reduces manual intervention during renewals, but also helps reduce customer churn by allowing subscriptions to remain active.

Cancellation Workflow

Ideally, a subscription created under contract for a specific number of billing cycles should not be canceled during the contract term. This defeats the purpose of contract terms—to bring stable revenue to your business and to offset any initial price reductions.

Chargebee gives you complete control to handle cancellations for your customers. When your customers want to cancel their subscription, you can choose one of the following options:

• Allow cancellation only at the end of the contract term – Cancellation initiated during the contract period will only cancel the subscription at the end of the contract term, and the subscription will not renew.
• Terminate Immediately – The contract and the subscription are terminated immediately.

In both the cases, Chargebee allows you to decide how you want to handle credits for the unused period in the subscription.

Cut-off Period for Cancellations: You can configure a cut-off period for customers before which they can cancel their subscription (contract). The cut-off period gives you lead time to manage your business operations around cancellation. For example, you can set the cut-off period as one month or ten days prior to the subscription auto-renewing. Before this period, your customers can cancel the subscription if they do not want it to renew. When they do cancel, you will have enough notice and time to address it.

A subscription on contract can be cancelled in one of the following ways:

• Chargebee Interface: A subscription on contract can be cancelled by your users in Chargebee from the subscription details page.

• Self-serve Portal: A subscription under contract can be canceled by your customers from the self-serve portal, if you have enabled "Allow customers to cancel subscriptions" under portal settings for contract terms.

• API: A subscription under contract can also be canceled using the API.

Contract Termination & Fee

Chargebee allows you to charge a termination fee for customers who want to terminate a subscription under contract immediately. You can create a non-recurring addon for the termination fee and add this to the subscription to charge the customer whenever the contract is terminated.

You have the flexibility to override the termination fee as needed. You can use change subscription to either reduce the fee or remove the addon to waive the fee for customers. This opens more opportunities for negotiation, which could help retain the customer.

In addition to handling the above workflows, contract management in Chargebee allows you to capture the contract term value and provide flexibility for your customers to upgrade or downgrade the subscription during the contract term.

Configuring Contract Terms

To set up contract terms in your Chargebee site, click Settings > Configure Chargebee > Billing LogIQ > Customers & Subscriptions > Contract Terms, then click Enable.

1. In Contract Terms, select how you want the subscriptions to renew, when the contract term ends. You can select from the following options:

   • Contract renews: A new contract and subscription are created for a specific number of billing cycles.
   • Subscription renews without a contract: The subscription will remain active without contract terms.
   • Contract and Subscription end: This stops both the subscription and the contract upon renewal.

2. When you choose to renew the contract, a. Select the number of billing cycles for which the subscription should renew. You can either choose Same as specified in Contract or choose Custom and specify a value. b. In the Cut-off period for cancellation, specify the number of days before the Contract Renewal/Contract Expiration, when the customer can cancel their subscription. You can override all of these settings at a subscription level, while creating or modifying the subscription.

3. Under Subscription termination, you can select how you want to handle credits for unused period when a subscription on contract is terminated. You can select from the following options:

   • Don't Issue Credits
   • Issue Prorated Credits
   • Issue Full Credits

Additionally, you can add conditions to handle this differently based on
where the subscription cancellation is being invoked. Click the more icon
and add conditions to this rule. Select a source, and add the corresponding
behaviour. For instance, you can issue full credits when your users invoke
cancellation from the Chargebee Interface, otherwise for all customers who
cancel subscriptions from the self-serve portal, you may choose not to issue
credits. You can turn the toggle on/off to allow/lock the overriding
capability. When overriding is allowed, users will be able to change this
global setting at a subscription level.

4. If there are existing unpaid invoices for the subscription that is being cancelled, you can choose to

   • Retain as unpaid: No further action will be taken.
   • Attempt Collection: If Auto-collection is ON for the customer, an automatic charge for the due amount will be attempted on the available payment method.
   • Write off: The amount that is due will be written off. Credit notes that get created for the write off will not be sent in response.

5. Under when do you want to cancel the subscription, you can select:

   • Terminate immediately
   • End of contract term

6. Under Advanced Settings, if there are existing unbilled charges for the terminated subscription, you can select:

   • Invoice - An invoice gets raised for the unbilled charges, and when the auto-collection is turned on for the customer, an automatic charge for the due amount is attempted on the available payment method.
   • Delete - The unbilled charges get deleted.

7. And finally, you can turn the toggle on to apply refundable credits/excess payments to unpaid invoices.

Once you are done, click Apply to save your configuration.

Go to Settings > Configure Chargebee > Checkout & Self-serve Portal > Portal. You can enable to configure fields that customers on contract subscriptions will see on their self-serve portal.

Once you are done, you can start creating subscriptions with contract terms.

Creating Subscriptions with Contract Terms

To create a new subscription with contract terms, navigate to Subscriptions > Create Subscription. In the Create a Subscription page, enable Apply contract terms to this subscription.

New fields for the subscription contract terms are displayed with values auto-populated from the global settings for contract terms. You can click and modify these values based on your requirements for each customer or subscription.

Once you click Create Subscription, your subscription is saved with the corresponding contract terms.

The subscription details page for a subscription created under contract highlights the contract-related details, such as the number of days left on the contract and the date of renewal or expiry.

New workflows related to the contract terms are added to the subscription actions.

• Bill Future Renewals - Select this option to create an advance invoice for the customer's upcoming subscription renewals. Ensure that the number of future renewals falls within the contract term.
• Cancel Subscription - Clicking this action displays a pop up, where you can select when you want to cancel the subscription - at the end of contract term or immediately.
  • You can specify how you want to handle credits for the unused period. This value is auto populated based on your global setting, but you can modify it here to suit the customer case.
  • When you choose to terminate immediately, you can specify a termination fee that will be charged for the cancellation.

Emailing Customers who are in Contract

You can send emails to customers who are in contract and notify them when their contract ends, renews or terminates. Go to Settings > Configure Chargebee > Customer-Facing Essentials > Email notifications. Under Subscription Management, click Subscriptions with contract terms and enable the notifications that you'd like to send.

Disabling Contract Terms

To disable contract terms in your Chargebee site, navigate to Settings > Configure Chargebee > Billing > Contract Terms and click Disable.

FAQ

1. Can subscriptions with contract terms and subscriptions without contract terms be created for a single plan?

Yes, you can create and manage subscriptions with contract terms and subscriptions without contract terms for the same plan.