Proration

When a customer adds 20 seats on the 18th of a 30-day billing month, they should not pay a full month for those seats. Proration splits the charge so they pay for the 12 days they actually had them.

The arithmetic is simple. The decisions around it are not.

The decisions that have to be made explicitly

• Daily or monthly basis? Daily proration is exact but produces awkward amounts. Monthly proration is tidier and slightly wrong. Annual contracts almost always prorate daily.
• Credit or invoice immediately? A mid-term upgrade can be invoiced straight away, or the prorated amount can be rolled into the next scheduled invoice. Rolling it forward is gentler on the customer and harder on cash flow.
• What happens on downgrade? Issuing a credit note refunds money you have already collected. Applying the credit against future invoices does not. Most B2B contracts do the latter, and say so explicitly.
• Do usage charges prorate? Generally no — usage is metered on actual consumption, so there is nothing to prorate. Only the recurring component needs adjusting.

Where it breaks

Proration errors are among the most common causes of billing disputes, and they cluster around three situations: changes made on the same day as a renewal, multiple changes within one period, and plan changes that also change the billing frequency.

Each of those requires the billing system to know the precise state of the subscription at the moment of the change. Where quoting happens in a CRM and the change is then keyed into a separate billing tool, the prorated amount on the quote and the prorated amount on the invoice routinely disagree — and the customer notices.