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Proration 

Proration for plans and addons is accomplished in two parts:

  • The calculation of credits for items (whether plan-specific or addon-specific items) unsubscribed from, for the unused time period of the current billing term and

  • The calculation of charges for the newly subscribed items for the remaining portion of the current billing period.

Chargebee provides the option to handle proration seamlessly.

Note

Proration does not apply to coupons that accompany your plans. As rebates on the items in your plans and addons, coupons are not prorated.

Enabling Proration

There are three ways to enable proration in Chargebee:

a) On the web interface under Settings > Configure Chargebee > Billing Rules:

b) Via the API as shown here. 

Note
  • If proration is disabled through the API, it will override the default proration setting configured via the web interface.
  • You can charge customers for upgrades. For downgrades, Chargebee will allow credits to be added to the subscription.

c) While changing a subscription: Proration can also be enabled or disabled while changing a subscription using the Apply prorated credits and charges option.

Note

As noted in the screenshot above, Chargebee provides time-based proration. This kind of proration is suited for services that are billed based on time-of-use such as SaaS. If you are selling subscriptions for physical goods which are billed based on deliveries, please disable this proration.

During subscription change, prorated credits or charges will be issued based on:

  • The type of change (upgrade, downgrade, or quantity change)
  • The status of the current term's invoice.

For example,

  • When the current term's invoice is in a Payment Due or Not Paid state, then during subscription change, the credits generated will be of the type Adjustment and these credits will automatically be applied to this invoice and the invoice's due amount will get reduced.

  • If the current term's invoice is in a Paid state, the credits generated will be of the type Refundable and will automatically be applied to the future invoice(s).

Here are a few scenarios to show the workflow in detail:

Plan Quantity Downgrade (Paid Invoice) 

Subscription created with plan quantity 2, on the 1st of September
Plan Amount: $10
Invoice Generated: $10x 2 (qty)= $20
Invoice is Paid
Subscription is changed on the 16th of September

New subscription quantity: 1
Invoice will not be generated
Prorated Refundable Credits $5x 1 (qty)= $5 will be issued

Subscription was created with the plan quantity set to 2. In the middle of the month, the plan quantity was downgraded to 1. In this case, credits for the quantity of 1 for the unused period of 15 days would hence be generated. Since the current term's invoice is in the Paid state, the credit note would be of the type Refundable.

Plan Quantity Downgrade (Payment Due Invoice) 

Subscription created with the plan quantity 3 on the 1st of September
Plan Amount: $20
Invoice Generated: $20 x 3 qty = $60
Invoice is unpaid

Subscription is changed on the 16th of September

New subscription quantity: 2
New invoice will not be generated
Adjustment Credits $10 x 1= $10 will be created and adjusted against the Payment Due invoice. The final invoice amount will get reduced to $50.

Subscription was created with the plan quantity set to 3. In the middle of the month, the quantity was downgraded from 3 to 2. Since the current term's invoice is unpaid, a credit note of the type Adjustment will be created for the price of 1 quantity and automatically adjusted against the invoice's due amount.

Plan Quantity Downgrade (Partially Paid Invoice) 

Suppose that a subscription is created for a monthly plan priced at $30 per unit as follows:

Plan Amount: $30/unit
Start date: Sep 1st
Quantity: 3 units
Invoice Generated: $30 x 3 units = $90
Payment received: $80
Payment due: $90-$80 = $10

Say the quantity for the subscription is reduced to 2 on Sep 15th.

Prorated amount for the unused service: plan price x unused quantity x fraction of time unused = $30 x 1 x 0.5 = $15.
So the total amount for the term changes to: invoice amount - prorated amount for unused service = $90-$15 = $75.
Since $80 has already been paid, a refundable credit note for $80-$75 = $5 is generated.
Also, an adjustment credit note for the original unpaid amount of $10 is also generated.

Plan Quantity Upgrade (Paid Invoice) 

Subscription created with plan quantity 1, on the 1st of October
Plan Amount: $10
Invoice generated: $10x 1 (qty)= $10
Invoice is paid

Subscription was changed on the 16th of October

New subscription quantity: 3
Credit Note will not be generated.
A new invoice is generated for the 2 additional quantities
New Invoice generated: $5 x 2= $10

Subscription was created with the plan quantity set to 1. The plan quantity was then upgraded to 3. In this case, no Credit Note will be created and an invoice will be generated for the two additional quantities.

The way proration is calculated and applied in the case of a Plan Quantity Upgrade, remains the same regardless of the Invoice status (Paid, Payment Due, Not Paid, or Partially Paid).

Plan Change Downgrade (Paid Invoice) 

Subscription created with plan (Plan A), on the 1st of March
Plan A amount: $60
Invoice is Paid

Subscription's plan downgraded to a new plan (Plan B) on the 11th of March

Plan B amount: $30
Invoice of $20 will be generated
Prorated Refundable credits $40 will be created, out of which $20 will be applied against the above invoice. The remaining credit balance ($20) will be available for future use.

Subscription was created with the plan (Plan A) of amount $60. The subscription's plan was then downgraded 10 days later to another plan (Plan B) of the amount $30. In this case, an invoice of $20 will be generated for the Plan B's amount for the period of 20 days and prorated Refundable Credits of $40 will be created for Plan A's unused period. Refundable Credits will then be automatically applied to the $20 invoice.

If the previous Invoice was unpaid, Adjustment Credits will be created and applied to this invoice.

Mid-term Change of Quantity for Quantity-based Pricing Models 

The following examples show how proration happens when changing the quantity mid-term for plans with tiered, volume or stairstep pricing.

Volume Pricing

Consider a monthly plan with the following volume pricing model:

Tier 1 2 3
Units in tier 1-100 101-200 201 or more
Price per unit $5 $4 $3

New Subscription Sign-up:

Say a customer signs-up for a new subscription as follows:
Sign-up date: Sep 1st
No. of units: 90
Since the no. of units falls under tier 1, the billing price would be: 90 x $5: $450

On Subscription Change:

Now say the quantity purchased is increased mid-month:
Date of subscription change: Sep 16th
New no. of units: 110
Since the no. of units now falls under tier 2, the new billing price would be: 110 x $4 = $440
Prorated billing price for the new subscription period (Sep 16 - Sep 30): $220
Credits on the original subscription for that period: $225

So for the subscription change, there will be refundable credits raised for $225 - $220 = $5

Tiered Pricing

Consider a monthly plan with the following tiered pricing model:

Tier 1 2 3
Units in tier 1-100 101-200 201 or more
Price per unit $5 $4 $3

New Subscription Sign-up:

Say a customer signs-up for a new subscription as follows:
Sign-up date: Sep 1st
No. of units: 90
Since the no. of units falls under tier 1 , the billing price would be: 90 x $5: $450

On Subscription Change:

Now say the quantity purchased is increased mid-month:
Date of subscription change: Sep 16th
New no. of units: 110
Since the no. of units now fall under tier 1 and 2, the new billing price would be:
100 x $5 (tier 1) + 10 x $4 (tier 2) = $500 + $40 = $540

Prorated billing price for the new subscription period (Sep 16 - Sep 30): $270
Credits on the original subscription for that period: $225

So for the subscription change, there will be a charge for $270 - $225 = $45

Stairstep Pricing

Consider the following stairstep pricing for a monthly plan:

Step 1 2 3
Units in step 1-100 101-200 201 or more
Price $300 $550 $700

New Subscription Sign-up:

Say a customer signs-up for a new subscription as follows:
Sign-up date: Sep 1st
No. of units: 90
Since the no. of units falls under step 1 , the billing price would be: $300

On Subscription Change:

Now say the quantity purchased is increased mid-month:
Date of subscription change: Sep 16th
New no. of units: 110
Since the no. of units now falls under step 2 , the billing price would be: $550

Prorated billing price for the new subscription period (Sep 16 - Sep 30): $275
Credits on the original subscription for that period: $150

So for the subscription change, there will be a charge for $275 - $150 = $125

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