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How Sonar Prorates Billing

Mitchell Paul-Soumis Updated by Mitchell Paul-Soumis

In Sonar, when adding a service to a customer account, you're presented with the option of prorating the service, and this article will explain how it works.

If you haven't used billing software previously and you aren't familiar with the term "proration", it's simply a process of adjusting the amount of a service or transaction in accordance with the amount of time passed in the billing period.

How Proration Works

Proration in Sonar is a layered process, and while some examples will be looked at specifically further on in the article, let's start by covering the basics.

Proration in Billing Settings

Accessible from Settings -> Billing -> Billing Settings, the "Proration" section will determine what exactly gets prorated based on which boxes are checked.

  1. The Prorate Services checkbox allows you to edit customer services mid-bill cycle and adjust the pricing as the change is made.
  2. The Prorate Service Quantity checkbox allows you to add additional amounts of an identical service to a customer account while only billing them for the time left in the billing cycle.
  3. The Prorate Account Status Change checkbox allows you to make account changes on a customer's account, such as canceling a customer account, and the remaining bill amount will automatically be refunded to the account's payment method.
  4. The Prorate Billing Day Change checkbox allows you to prorate any amount due as a result of a change in billing day, made through either customer request or for company requirements - such as migrating all customers to a first of the month billing cycle.
  5. The Round Prorated Amounts checkbox will allow you to configure round dollar amounts, either to the nearest cent or dollar depending on your company's preferences.

Applying Proration on an Account

From any actively billing account, making any change that affects billing - assuming the appropriate proration settings is configured for your instance - will provide an option to prorate the amounts:

The Calculation

When an added service is prorated, the Sonar system will calculate the time between when the service was added or removed and the next billing cycle. While you could calculate this amount directly by taking the amount of the service and dividing it by the number of days remaining in the billing cycle, a Proration Calculator is available in the knowledge base.

In cases of multi-month proration, the calculation occurs on the number of total months rather than the number of days within each month. Examples showing how this works are featured below.

Proration Examples

Example 1: Removing a Service

In this example, we'll be removing and prorating a service being removed from an account. The calculation will then be dissected in order to better understand how a credit is being applied to this theoretical customer's account.

First, access the customer's Account Management view:

Within the account, navigate to the Billing tab, then select the "Services & Packages" pill:

The Services & Packages page presents a list of services that the customer currently has applied to their account. We'll be removing the active service on this account, and adding a new one in a later example. To remove a service, click on the dropdown arrow next to the "Edit" button and select "Delete":

From the "Delete Account Service" modal that appears, we'll be making sure that the "Prorate" box is checked:

In this example, we're prorating from today's date so we can leave the "Proration Date" field empty. Your usage may need to vary.

Once we've submitted the deletion, a transaction will appear on the account, which you can review under the Billing tab, followed by the Transactions pill:

Expanding the details of the transaction will show you exactly what occurred during the proration calculation:

In this transaction, we can see a discount of $32.22 was applied to the customer's account, representing service cost for the 14 days between the "Prorated From" date and the "Prorated To" date. We can calculate the amount ourselves by using the following equation:

Service Price Per Day * Number of Days remaining in Billing Period = Amount to credit
To calculate the Service Price Per Day, take the dollar amount being charged for the service, multiply it by 12, then divide by 365.

Example 2: Adding a Service

In this example, we'll be adding a service to an account and reviewing how the proration is calculated when creating a debit on the customer's account as a transaction.

First, access the customer's account management view:

Next, navigate into the Billing tab and select the "Services & Packages" pill:

The Services & Packages page presents a list of services that the customer currently subscribes to. In a previous example, we removed the service on this account, and now we'll be adding a new one to the account. Click on "Add Service" and select the new service from the modal, ensuring the "Prorate" check box is selected:

When adding a service, you can view the Proration Date on the "Services & Packages" page:

Or from the "Transactions" pill:

In this transaction, we can see a debit occurred for $29.89, representing the cost the customer will have to pay for the service over the remaining 14 days between the "Prorated From" and the "Prorated To" date. We can calculate the amount ourselves by using the following equation:

Service Price Per Day * Number of Days remaining in Billing Period = Amount to debit
To calculate the Service Price Per Day, take the dollar amount being charged for the service, multiply it by 12, then divide by 365.

Example 3: Prorating a Multi-Month Billing Service

In some cases, you may have customers operating on a multi-month billing schedule for one reason or another. Changing services on an account on a multi-month billing schedule will result in a unique calculation.

First, access the customer's account management view:

Next, navigate to the Billing tab, and select the "Services & Packages" pill:

From there, we'll be adding a new service to the account by clicking on the Add Service button, and selecting the service from the "Create Account Service" modal:

In this example, we'll be adding a proration date in the past to demonstrate the calculation. Ordinarily, this would adjust to your customer's next bill date.

Here we can see the Proration Date, which we can view in more details on the "Transactions" section of the Billing tab:

One thing to note is that the calculation is no longer as simple as determining the service cost per day. In Sonar, a full month of service is charged as a full month, regardless of the number of days contained in the month. Rather than the calculation being

 Service Price Per Day * Number of Days remaining in Billing Period = Amount to debit

The calculation is instead

(Service Price * Number of Months) + (Service Price Per Day * Number of Days Remaining in Billing Period) = Amount to Debit

Let's break down this specific example:

  1. We know the service price is $24.95 monthly, and there have been 3 total months since the "Prorated From" date provided of February 1st
  2. We can calculate the service price per day by taking the service price, multiplying it by 12 (months), and then dividing it by 365 (days in the year)
  3. Lastly, we know that there are 17 complete days in the partial month of May being billed to this customer

The calculation for this example would therefore be:

(24.95 * 3) + ([24.95 * 12 / 365] * 17) = 88.79

Considerations when Prorating with Sonar

  1. When your instance is configured to send out an invoice on account creation, prorating the initial charge can result in two invoices going out. One invoice will be sent immediately, containing a small prorated amount. On the customer's next invoice day, they will receive an additional invoice with their actual monthly amount.
    This function is working as intended, as invoices are being delivered to the customer as they're generated. You may need to explain to your customer that both invoices will need to be paid, but the first invoice is an adjusted amount for their service until the next bill date.
  2. If you choose to implement anniversary day billing and a customer obtains a new service at the end of the month, September 29th as an example, your billing default settings may result in a proration that skips over certain days. If you find the "Next Bill Date" of an account activated at the end of the month doesn't match your expectations, reach out to the Support team and ask for assistance with your billing.
  3. When adding a new service to an Active account, you're unable to prorate the service as though it was added at a future date. For example, a service being added on September 9th can't be prorated forwards as if to bill starting September 18th. However, adding a service does allow you to prorate backward if the service should have been added within the last service period.
    Service deletion functions in the opposite way, where a deleted service can be prorated to a future date, but cannot be prorated as if it was deleted in the past.

How did we do?

General Transactions: Best Practices

Usage Based Billing Policies: Overview and Usage

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