Should one use prorata for payments or not?

[sahostking]

What do you guys recommend? Should one use Prorata or not for web hosting services of $5 etc.

 

What do you guys do ? Any recommendations? It will obviously make billing run easier? right?

[nimonogi]

IMO, Prorate is only useful if you have an accounting/billing dept. that will be manually processing transactions. Otherwise I can find any use of it.

[yggdrasil]

IMO, Prorate is only useful if you have an accounting/billing dept. that will be manually processing transactions. Otherwise I can find any use of it.

 

Depending on your size you will need an accounting/billing dept eventually. That has nothing to do with prorate billing. Just assuming you are a real company paying taxes means you probably need to do some accounting one day.

 

There was a discussion about this before and both methods have their benefits and cons. It all depends on what type of services you offer and sell.

 

For some people its easier to bill all invoices on one single day. For example the 1 of each month, then you know what you need to bill all invoices the first of every month and you can be sure you are not missing any payments that day. This can be actually easier than having each invoices and payments on different dates that you need to track down individually in case of problems. Its also easier on customers, personally I can remember better services that are billed the first or the last of the month.

 

The big advantage I see by using prorate and billing all customers the same day, is if you have products or services where customers tend to have more than one product in their accounts and those can have multiple addons or extras on its own. A customer that has 20 products and addons would now be billed differently assuming they fall on different dates. Now you just send 20 invoices and billed 20 times a customer. That is not only messy for the customer but also expensive on your side. (merchant fees, etc.)

 

Its way more efficient to bill them 1 time, for all the 20 products once a month. If you have prorate this is exactly what happens. That customer would receive 1 single big invoice, the first of the month and you would bill him once for all products and services. Personally I think this is better, and this is mostly used by big companies as well, as well cloud services in general. You don't want to charge smaller amounts when you can charge one single consolidated bill. For small companies it could also mean charging all customers one day at a month (in particular if its manually) means its far more efficient and easier since you could dedicated that day just for billing/accounting tasks.

 

The only downside I can see, is if you have a problem that specific day (like a glitch in your server), now you missed the payments for all customers. But this would get noticed immediately and you could rectify it the next day billing everyone. The other downside I see is that some companies prefer to have a more steady cash flow trough the month as opposed to receive all the income 1 single day but if you are organized in terms of finances, that should not be a problem unless you are huge and cash flow can potentially be a big issue. For most small companies, I don't think this will be a problem and they can sustain their bills for at least one month until the next billing batch.

 

The other downside could be non paying customers. In prorate, lets say you bill the first of each month and someone buys on the 20, he only paid 10 days, but on the first his card is declined and you can't bill the full amount as opposed to have received the full month on the first purchase.

 

Prorate is better in many ways, even for customers that will pay less on their first purchase this could even send more sales your way. The nice thing about WHMCS is that you can use the normal billing, but set specific products to a prorate billing. This is actually the preferred way I think. Not have everything to prorate but only some products. This way you can mix and combine what works best for you. In the end it all depends on what you sell and how you plan to manage your finances and company. Prorate is not bad, its actually very good for specific type of services. With cloud and metered services I think it solves several problems, since you can bill all the smaller charges on one big invoice.