What is Prorated Subscription Billing

What is Prorated Subscription Billing? How Can It Benefit the Recurring Revenue? And, What Are The Risks Of Not Using the Prorated Billing? Learn More About Optimal Billing

What annoys customers most, and why do they often cut the cords with the subscription-based products or services after using them for a small period?

Depending on the need or budget of the customers, when they choose to buy a subscription, they are fully aware of the subscription plans and their pricing. Then, what happens that makes them part their ways from your services or subscriptions?

What goes wrong is the receiving of an inappropriate invoice after incorrect calculations in billing. It hurts their trust and dents your credibility which eventually results in an increased churn rate and depreciation in the recurring revenue as well as business repute.

The subscription system allows customers to avail of products or services for a decided length of the period against a subscription fee after every certain and pre-defined interval. It also provides customers to test, try, and then upgrade or downgrade their plans based on their current situation of product or service requirement and the pocket, of course.

Allowing a customer to make changes in their subscription plans incurs a hassle of adjusting their subscription billing following the frequency of changes, exactly and timely, requires a smart capability in the billing system.

This ability, in terms of accounting and finance, is called Proration. Let’s learn more about it.

What is Proration

In subscription billing, proration is a system that allows customers to make changes in their subscription plans, including plan upgrade, downgrade, or cancelation, or change the quantity of the subscribed products or its frequency in a subscription cycle, without messing their billing.

Proration happens to adjust—manually or automatically—the charges in billing in the middle of the subscription term. Hourly, daily, or Product Frequency—whatever the billing mode is, proration follows the suit and charge a customer fairly only for the time they have used your subscription services.

What is Prorated Subscription Billing?

Prorated Subscription Billing can be defined as an adjusted invoice or a bill calculated as per the usage of the subscription plan within a defined interval. It includes monthly consolidated subscription charges and changes in the mid of the month.

For instance, a customer uses a monthly subscription plan A costs $20 for 15 days and in the middle of the cycle, he or she chooses to switch their monthly subscription plan from A to B which costs $30, then proration adjusts the changes in the subscription charges in the billing as per the usage of any of the plans in a day. In this scenario, a customer is charged for Plan A for 15 days that is $10 and then charged as per Plan B for a further 15 days that is $15. The invoice generated after the prorated billing, excluding other charges, shows a calculation of $25 as the subscription charges for the month, instead of $20 or $30.

Read Also: What Does Prorated Mean

The Benefits of Prorated Subscription Billing

Proration can play a key role in streamlining the invoicing, billing, and payment processing into your accounts with no stresses of reverse processing.

Usage-Based Fair Charges

Simplify the process of billing and adjustments with transparency and fair dealings with the help of using subscription and recurring billing management system using prorated billing which helps you determine the accurate charges. Upgrade or downgrade— charge customers for only what they have used in a billing cycle.

Accurate Billing

With proration, install confidence of accurate and exact billing across the customer base and win the trust to increase their lifecycle. As long as you offer the transparency and accuracy in billing, no matter what you cost for your subscription services, you can retain customers, and with the help of word of mouth credibility, can acquire more and grow the net of your subscription family.

No Hassles of Return and Refunds

Inaccurate billing not only damages the repute, but it also wrecks the whole accounting process in a billing cycle. If a customer’s credit card charged inaccurately, either you need to refund them the extra deducted amount in case of downgrading a plan, or you have to bill them again for the charges you have not included in their billing in case they have updated the plan. In both situations, this increases the stress in billing numbers and disturbs the cashflow and workflow simultaneously.

The Risks of Not Using Proration System in Subscription Billing

Proration is the need of the recurring billing of subscriptions. Non-compliance can seriously engrave holes in the subscription business and its operations.

Loss of Recurring Revenue and Repute

 Inaccurate billing first damages the credibility and trust in an ecosystem of subscription which ultimately hurts the whole chain. And, the results reflect as the decrease in the recurring revenue.

Increased Churn Rate

When the subscribers are over-billed, they tend to switch to other options. Because, the idea of subscription-based business is set-up on the grounds of convenience, simplicity, and cost-efficiency. Proration helps subscription businesses to enrich their billing with these values with healthy customer retention rate.

Difficulty In Tracking Revenue & Scaling the Business

When the billings are not precise, there are chances of non-streamed finances operations with more forward or backward accounting processes as refunds or other billing adjustments. It leads subscription businesses to lose their track of revenue and, eventually, it hinders scaling of the business in an upward direction.

How SubscriptionFlow Favors to Grow Customer’s Life Cycle Through its Smart Proration

It takes so much stress, effort, time, money, and other resources to establish a subscription-based business that gives the security of recurring revenue, predictability in the market, supply and demand management, and above all, customer retention.

A bad billing experience can damage it all. And, configuring the proration in the billing system, since the beginning, can save businesses from lots of damages.

SubscriptionFlow can be your assistance in providing your customers with optimal experience of precise billing with its AI-enabled modules for manual as well as auto-proration handling along with other rich features.

SubscriptionFlow is a full-fledged affordable, easy, simple, and flexible subscription management solution that automates the recurring billing operations, including

  • Tier-based Plans & Price Designing
  • Invoicing
  • Recurring Billing
  • Payment Charging
  • Payment Processing
  • Proration Handling
  • Dunning Management
  • Customer Base Management
  • Recurring Revenue Management
  • Revenue Metrics
  • And, many more.

Get a free trial or schedule a demo to explore the business opportunities for subscription-based ventures offering products or services with any billing mode and customer base.