Prepaid credits

Prepaid credits invert the usual usage-billing cash cycle. Instead of metering consumption and invoicing in arrears, the customer buys a balance in advance and usage burns it down.

The appeal is mutual. The vendor collects cash up front and removes credit risk from a usage model. The customer caps their exposure — they cannot receive a surprise invoice larger than what they have already bought — and usually gets a volume discount for buying a bigger block.

The decisions that define the model

• Do credits expire? Expiry protects revenue recognition and forces re-purchase; no expiry is friendlier and leaves an open-ended liability on the balance sheet.
• What happens at zero? Hard stop, auto-top-up, or continue and invoice the overage in arrears. Hard stops protect you and infuriate customers mid-workload; auto-top-up is the usual compromise.
• Are credits denominated in currency or units? Currency-denominated credits let you change unit prices without repricing the balance. Unit-denominated credits are easier for customers to reason about.
• Are they refundable? Usually not, and this should be explicit.

The accounting

A credit purchase is cash received for a service not yet delivered, so it sits as deferred revenue and is recognised as credits are consumed. Where credits expire unused, the remaining balance is recognised as breakage at expiry.

That treatment means a credits model needs the metering system and the revenue system to agree on the consumption ledger — a per-customer running balance with an auditable history, not a monthly total.