Prorated bills are an incredibly useful tool that offers benefits to both merchants, as well as their clients. When you prorate a bill, you ensure that customer is only paying for what they use.
To better understand what a prorated fee is, you can first look at what the word prorated actually means. The word prorated stems from pro rata, a Latin phrase that means in proportion to. So, a prorated bill is a fee that’s in proportion to the amount of time a customer has been subscribed to a particular service.
Let’s take a look at how this actually works…
How does prorated billing work?
A prorated fee is used for scenarios where a customer subscribes or unsubscribes from a particular service before or after the start date of the billing cycle.
Customers who subscribe before or after the start of a billing cycle to merchants’ services that use prorated costs will receive a prorated invoice. Merchants prorate invoices to ensure their customers are only charged for what they’ve used.
Now that you understand what a prorated fee is, it’s important to know how to prorate a bill.
The price of an invoice or bill is calculated in proportion to the number of days the customer has subscribed to the service in the billing cycle. So, by dividing the overall price of a month’s subscription fee by the number of days in the month, a merchant can calculate the price of an individual day’s subscription fee. After that, all the merchant needs to do is add the number of days the customer has used the service and charge the respective amount for the services used.
Customers that subscribe halfway through a billing cycle will not be charged the full amount of the billing cycle and instead, will only be charged for the number of days they’ve been subscribed. Therefore, the prorated price is basically a fraction of the overall cost of a monthly subscription fee.
Prorated billing can serve as a great tool for businesses to offer to customers who are interested in or currently using their subscription services.