Proation Method: Examples

Calculations for proration can be based on the number of days or number of months. The method used for the proration calculation is set on the Advanced Recurring Contract Billing Parameters page. The proration method affects how the amounts are calculated for a billing schedule in the following situations: 

• Initial creation
• Application of an escalation or discount
• Termination
• Placement or removal a hold
• Addition of support or renewal

The proration method also affects the calculations in the monthly recurring revenue (MRR) report.

Example 1

The annual amount of a billing schedule is 5000.00. The start date is August 12, 2019; the end date is December 22, 2019. The billing frequency is annually.

• Daily
  • Number of days = End date - Start Date + 1 = 133 days
  • Number of days in the year = August 11, 2020 - August 12, 2019 + 1 = 366
  • Prorated amount = 5000 * (133/366) = 1816.84
• Monthly
  • Start month portion = (31 - 12 + 1)/31 = 20/31
  • Middle months = 3
  • End month portion = 22/31
  • Prorated amount = 5000/12 * [(20/31) + 3 + (22/31)] = 1814.52

Example 2

The annual amount of a billing schedule is 12000.00. The start date is August 1, 2019; the end date is December 31, 2019. The billing frequency is annually.

• Daily
  • Number of days = End date - Start Date + 1 = 153 days
  • Number of days in the year = July 31, 2020 - August 1, 2019 + 1 = 366
  • Prorated amount = 12000 * (153/366) = 5016.39
• Monthly (Full Month)
  • Number of months = 5
  • Total months = 12
  • Prorated amount = (12000 * 5)/12 = 5000