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Billing mechanics

Proration

Charging or crediting for part of a billing period when a subscription changes mid-cycle.

Proration is what happens when a subscription changes in the middle of a period it has already been billed for. A customer who upgrades on day 15 of a 30-day month owes roughly half a month at the new price and is owed roughly half a month back at the old one.

The details are where billing systems differ, and where they get it wrong:

  • Basis. Prorating by day is common; prorating by second is more accurate and matters for hourly or usage-linked plans.
  • Timing. The difference can be invoiced immediately, or held and applied to the next scheduled invoice. Immediate is clearer; deferred is quieter.
  • Direction. Downgrades often produce a credit rather than a refund. Whether that credit expires is a policy decision, not a technical one.

Proration is the single most common source of billing disputes, because it is the one calculation a customer can check by hand and disagree with.

Related terms

  • Billing cycle The recurring period a subscription is invoiced for, and the run that generates those invoices.
  • Upgrade and downgrade A subscription moving between plans, with proration, entitlement changes and revenue effects that differ by direction.
  • Credit note A document that reduces or cancels an amount previously invoiced, used for refunds, corrections and downgrades.
  • Anniversary billing Billing each customer on the date they subscribed, so renewal dates are spread across the month.