How to bill a client that cancelled their subscription in the middle of the month

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The subscription economy has many advantages for both the provider and the client. But if the client abruptly cancels their subscription in the middle of the month, how do you bill them? Do you go ahead and charge them the whole month or do you charge them pro rata? Each option has its pros and cons.

Option 1: Bill the whole month

The simplest solution of course is to bill the entire subscription month. Many businesses use this strategy because it allows them to bill

  • More simply
  • The maximum amount

At first glance, this option is the most advantageous to you but, upon closer examination, there are pitfalls lurking in the shadows. The main problem is the method of cancellation because companies have to structure multiple processes around it. There is the chicken and egg conundrum—the internal cancellation procedure the company chooses depends on the external method, but the external method is often chosen due to established internal procedures. It’s also a genuine sales practice. For example, many services, such as energy contracts, internet providers, or press subscriptions, require the client to send termination notice by registered post. In this case, the subscription cannot be considered cancelled until the notice is received, making it difficult for the client to predict the exact ending date. 

This kind of administrative run-around can drive clients to despair as they simply try to end their subscription. And, in the end, does it make managing your cancellations any easier? Does it even make sense in this digital age when most services can be cancelled in just a few clicks?

In any case, it is important to clearly articulate the termination clauses in your terms and conditions. Some companies seem to purposefully obfuscate their methods of cancellation, leading to a potential source of dissatisfaction among clients who are often looking for flexibility. While the short-term effects (the final bill reflects the maximum charge) seem more beneficial, this option’s effect on customer relations may turn out to be problematic. 

Option 2: Pro rata billing

Your other option is to bill the subscription’s true duration during the final sales month. This is called pro rata temporis in the billing sector and it entails adjusting the price according to the duration of the sale. For example, if a monthly subscription is cancelled on the 15th of the month, the client is only billed for 15 days rather than the entire month. This flexibility is appreciated by the client but requires you to have an instantaneous cancellation management system. The subscription end date must be accurately registered in order to correctly bill the client and, ideally, the client’s access to the service would be cut off at the same time. 

This option has historically had many disadvantages, but they have been progressively erased by digitalisation. As we begin to exchange in real time with our clients, the cancellation process has become simpler and the client more likely to return. A simpler process reassures the client that they are in control and that they won’t have to jump through hoops if they need to stop their subscription. You don’t want to sever ties with a client just because they want to unsubscribe, you want to invite them to resubscribe later on! 

However, this option can complicate billing with additional formulas:

(price of monthly subscription) x (pro rata temporis)

Pro rata temporis is a percentage calculated by:

(effective billing period— in days) / (total billing period— in days) x 100

Automatic pro rata billing

Fortunately, where there is digitalisation, there is automation. Sofacto took advantage of technology to invest in pro rata billing opportunities just as the subscription economy emerged. We’ve made it easy for you to use these automations within our billing solutions and avoid the headache of manually calculating each client’s pro rata invoice. 

The main objective when using this type of billing is to retain clients by inviting them to resubscribe just as easily as they unsubscribed. To this end, pro rata works just as well at the beginning as it does at the end—the client can start a subscription in the middle of the month and pay only for what they use. 

These loyalty challenges are even more decisive at a time when consumer habits are changing, particularly around a client’s attachment to the products they buy. According to a study done by the Observatory of Consumer Behaviour (Odoxa) [1], only 9% of French people truly care about owning the goods they consume.  

[1] source: (study of the subscription economy, done in March 2018 by the Observatory of Consumer Behaviour (Odoxa)) 

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