What is Proration

Proration is adjusting a customer’s bill to charge only for the portion of a billing period they used, instead of the full period. In simple terms, if service starts, ends, or changes in the middle of a billing cycle, proration means the customer pays only for the partial time.

How Proration Works: 

• When a customer upgrades, downgrades, or cancels a subscription partway through a billing cycle, the billing system calculates a prorated amount.
  
  

• For example, if a monthly subscription costs $100 and a customer switches plans after 10 days, the system will charge (or credit) only for those 10 days of service rather than charging $100 for the full month.
  
  

• The prorated charge is often calculated by multiplying the daily rate by the number of days used. This may result in a smaller bill or a credit on the next invoice.

Benefits: 

Prorated billing makes charges fair and transparent. Customers appreciate paying only for what they use, which can boost satisfaction and trust 

It also encourages upgrades, since customers know they won’t pay for unused days if they switch plans mid-cycle. For businesses, proration reduces disputes and complaints because bills align closely with actual usage. 

It also allows more flexible start dates, customers can sign up or upgrade at any time without waiting for a new cycle.

Examples: 

Common proration scenarios include; Starting a service in the middle of the month, or upgrading to a more expensive subscription partway through a cycle.

For instance, if a customer is on a basic plan and upgrades halfway through, their next invoice will be a prorated amount reflecting the days on the basic plan and the days on the new plan.

Telecom and utility companies often use proration when customers install service mid-billing cycle.