Docs

Recognizing Chargebee Credits Notes 

Overview 

As a Chargebee user, you may offer credit notes to your customers to make a full or partial refund of their original invoice amount for various reasons such as the product or service being unsatisfactory when customers choose a different plan or quantity, cancel or pause their subscription. Chargebee comes with a set of default credit note reason codes that you can use while applying credit notes for different business scenarios.

RevRec helps you with the recognition of credit notes from Chargebee with a set of default recognition methods based on the associated reason code. You can further adjust the treatment for certain reason codes through advanced configuration.

Default Recognition 

RevRec provides the following default accounting treatments based on the credit note reason codes in Chargebee.

Use Case: Future Discounts 

Reason Code

  • Product Unsatisfactory
  • Service Unsatisfactory
  • Chargeback
  • Waiver
  • Subscription Pause

RevRec Default Treatment

The credit note will be recognized prospectively over time, from the credit note creation date to the end-of-service date of the order/invoice that is associated with it. This will offset the revenue stream associated with that order/invoice. Further, there will be no impact on the revenue that is already recognized.

Example

A 6-months contract is created with a total value of $600 ($100/month). In April, a future discount of $60 is issued which makes the total contract value $540.

Original Invoice
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 100 100 100

Roll Forward
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 80 80 80

Use Case: Cancel/Write-Off 

Reason Code

  • Order Cancellation
  • Subscription Cancellation
  • Write-Off

RevRec Default Treatment

These reason codes mark the end of the associated invoice/order.

  • For a full refund, RevRec will stop the revenue recognition going forward and will reverse the cumulative recognized revenue. The reversal of revenue recognition is recognized only in the open accounting period.
    For example, an order starts on January 10 and a full refund is issued on February 5th. If January is an open period, RevRec will show zero revenue for this order for both January and February. If January is closed, RevRec will show revenue for January and then a reversal of the same amount in February.
  • For a partial refund, RevRec will stop the revenue recognition going forward and there will be no reversal of revenue that is already recognized.

Full Refund Example

A 6-months contract is created with a total value of $600 ($100/month). The accounting periods for January through March are closed. In April, the contract is canceled with a full refund. RevRec will recognize the reversal of the $300 in April and zero revenue going forward.

Original Invoice
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 100 100 100

Roll Forward
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 -300 0 0

Partial Refund Example

A 6-months contract is created with a total value of $600 ($100/month). In April, the contract is canceled with a pro-rated refund of $300. In this case, RevRec will stop revenue recognition starting from April and no revenue that is already recognized gets reversed.

Original Invoice
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 100 100 100

Roll Forward
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 0 0 0

Use Case: Correction 

Reason Code

  • Fraudulent

RevRec Default Treatment

The credit note is retrospectively applied - from the order's service start date to the service end date and offsets the revenue stream of the original invoice. Further, the cumulative impact is recognized in the open accounting period.

Example

A 6-months contract is created with a total value of $600 ($100/month). In April, a correction is made where the customer is issued with a $60 credit note making the total contract value as $540.
If accounting periods for January through March are closed, RevRec will recognize the cumulative impact of the correction of $40 in April ($10/month impact from January to April) for net revenue recognition of $60 for April, and $90 per month for May and June.

Original Invoice
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 100 100 100

Roll Forward
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 60 90 90

If accounting periods for January through March are still open, RevRec will recognize the adjustments for each individual month and report revenue as $90 per month.

Original Invoice
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 100 100 100

Roll Forward
Jan
Feb
Mar
Apr
May
Jun
Revenue 90 90 90 90 90 90

Use Case: Plan Change 

Reason Code

  • Order Change
  • Subscription Change

RevRec default Treatment

This is the case where the customer changes to a different subscription plan in the midst of an existing subscription contract. A credit note is issued on a prorated basis to refund the unused portion of the original plan. RevRec will stop the revenue recognition of the original plan, and generate a new revenue schedule for the new plan going forward.

Example

A 6-months contract is created with a total value of $600 ($100 per month). The accounting periods for January, February, and March are closed. In April, the customer upgrades from the basic plan to a premium plan with no extension to the contract term. The Premium subscription invoice amount is $1200 ($400 per month) and a credit note of $300 is issued for the pro-rated refund of the remaining periods of the original contract.

Original Invoice
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 100 100 100

Roll Forward
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 400 400 400

Use Case: One-Off 

Reason Code

  • Other

RevRec default Treatment

RevRec will recognize the full credit note amount in the period of credit note creation.

Example

A 6-months contract is created with a value of $600. In April, a one-off credit note is issued for the amount of $60.

Original Invoice
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 100 100 100

Roll Forward
Jan
Feb
Mar
Apr
May
Jun
Revenue 100 100 100 40 100 100

Advanced Configuration 

In addition to the above default treatment, you can use the advanced configuration to customize the recognition treatment applied to certain credit note reason codes based on your specific requirements. Please contact your RevRec support team to enable and use the advanced configuration.

Reason Code 

  • Product Unsatisfactory
  • Service Unsatisfactory
  • Chargeback
  • Waiver
  • Subscription Pause

For all the above reason codes, you can customize the default treatment and opt to:

  • Recognize the full credit note amount in the period of credit note creation, or
  • Apply it retrospectively with the original contract start and end date, offsetting the revenue stream of the original contract.

Reason Code: Other 

You can opt to:

  • Apply it retrospectively with the original contract start and end date, offsetting the revenue stream of the original contract, or
  • Apply it prospectively from the credit note creation date till the end of the contract.

Reason Code: Fraudulent 

You can opt to:

  • Recognize the full credit note amount in the period of credit note creation, or
  • Apply it prospectively from the credit note creation date till the end of the contract.

Custom Reason Code for Credit Note 

Chargebee allows you to configure and create additional custom credit note reason codes. You can use the advanced configuration to customize the recognition treatment applied to custom credit note reason codes based on your specific requirements.

Using Billing Date for Credit Note Recognition 

In addition to employing reason codes as a means of determining credit note recognition treatment, the 'from date' and 'to date' defined within the Chargebee billing system for the Credit Note can be utilized. This option can be implemented through advanced configuration settings to deactivate credit note recognition based on reason codes. Please contact your RevRec support team to enable and use the advanced configuration.

Once you configure to recognize credit notes based on the actual dates set in Chargebee, RevRec will incorporate the credit note adjustment to appropriately modify the original order's revenue figures.

Was this article helpful?
Loading…