Proration & Co-Termination for Recurring Billing Contracts in Work 365 (Advance vs. Arrears)

Modified on Wed, Oct 29 at 12:46 PM

Applies To: Work 365 (Billing Contracts, Subscriptions)
Audience: Billing Managers, System Administrators

Overview

Work 365 prorates recurring subscription charges to match a Billing Contract’s cycle and supports co-termination so new subscriptions align to a common renewal date. Behavior differs when a contract bills In Advance versus In Arrears. This guide explains concepts, mechanics, configuration, worked examples, and FAQs so invoices are accurate and predictable.

Key Concepts

Billing Contract – Governs Billing Policy (Advance/Arrears), Billing Frequency (Monthly/Quarterly/Annual/Triennial), Prorate Unit (Days or Months), and key dates (Start, Next Invoice, Renewal). All linked subscriptions follow this cadence.

Proration – Partial-period charging when subscription dates don’t align with the contract cycle. Driven by the Prorate Unit and the Monthly Unit Selling Price.

Co-termination – Aligns a new subscription’s renewal/term to the contract’s renewal (or month-end), consolidating anniversaries. Supported in Work 365 (v4.5+) and generally compatible with Microsoft CSP/NCE (subject to provider rules).

LCL (License Change Log) – Records each change (qty/price/activation) with Effective Date; used for proration, audit, and invoicing.

How Proration Works

Scope: Recurring subscriptions linked to a recurring Billing Contract.
Trigger: Misalignment between a subscription’s Effective/Start/End dates and the Billing Contract’s cycle.
Result: First and/or last cycle amounts are prorated, then subsequent invoices follow the full cadence.

Prorate Unit & Formulas

Months basis
- Prorated Charge = (# prorated months) × Monthly Unit Selling Price
- Months are counted to the contract’s cycle boundary (e.g., to renewal/anniversary).
Days basis
- Daily Rate = Monthly Unit Selling Price ÷ (# days in the monthly basis)
- Prorated Charge = Daily Rate × (# billable days to cycle boundary)
- Tip: Keep your “monthly basis” consistent (actual calendar days vs. policy basis) across contracts.

What Co-Termination Does

When adding a new subscription (e.g., via Product Explorer) with Co-termination enabled:

The new line inherits the contract’s renewal date (or month-end, if selected).
The first charge is prorated to that renewal, avoiding scattered anniversaries.

Advance vs. Arrears — What Changes?

Aspect	Billing In Advance	Billing In Arrears
When billed	At cycle start (typically ~1 day after cycle start).	After cycle end (typically ~1 day after cycle end).
Proration focus	First invoice lines prorate from subscription start to contract renewal.	Charges reflect the portion active during the closed cycle.
Refund behavior	Mid-cycle reductions can auto-credit if Process Refunds is enabled.	Less refund-oriented; changes appear naturally on the arrears invoice.
Co-term impact	New items co-term immediately; first line is prorated to renewal.	New items appear on the next arrears invoice with a prorated amount for active days/months.

Provider limits: Microsoft CSP/NCE can restrict mid-term reductions, conversions, or realignments. Work 365 enforces provider responses during provisioning & billing.

Configuration Checklist (Quick)

On each Billing Contract:

Billing Policy: Advance or Arrears
Billing Frequency: Monthly / Quarterly / Annual / Triennial
Prorate Unit: Days or Months (override global default if needed)
Key Dates: Start Date, Next Invoice Date, Renewal Date
Refunds (Advance): Enable Process Refunds if mid-cycle credits are allowed
Units & Mapping: Monthly=1, Quarterly=3, Annual=12, Triennial=36 (Admin → Unit Mapping)
Price Lists: Ensure Price List Items exist for every unit you sell (Cost & Selling)
Co-term on Add: In Product Explorer, enable Co-termination / Month-end alignment

Worked Examples

1) Monthly, In Advance, Co-term to the 1st

Contract: Bills on the 1st (Monthly, Advance).
Subscription starts: Jan-12.
Invoice 1: Prorated Jan-12 → Jan-31 (Days or Months basis per contract).
Next invoices: Full months on the 1st (Feb-1, Mar-1, …).

2) Annual Contract With Half-Year Term

Contract term: Jan-1 → Jun-30 only.
Charge:
- Months basis: 6/12 of annual price.
- Days basis: Daily rate × exact days in the 6-month window.

3) Arrears Contract, Mid-Month Start

Contract: Monthly, In Arrears.
Subscription starts: Apr-10.
Invoice: May-1 shows a prorated line for Apr-10 → Apr-30.

FAQs / Common Questions

Which billing frequencies are supported?
Monthly, Quarterly, Annual, Triennial (these define renewal cadence and proration math).

Does co-term work for all scenarios?
Work 365 supports co-term for new subscriptions within a recurring contract. Some CSP/NCE offers impose provider-side limits (e.g., reduction windows, term changes).

Where do I choose Days vs. Months proration?
Set a global default and optionally override on the Billing Contract. The contract setting governs its linked subscriptions.

Do Non-Recurring Items (NRIs) prorate?
No. NRIs post by their effective date/quantity. Proration applies to recurring subscriptions.

How are discounts and taxes applied to prorated lines?
Percentage discounts and taxes apply proportionally to the prorated amount (per your tax/discount settings).

Can I switch proration basis mid-contract?
You can, but do so cautiously and test in sandbox. Changing basis can affect current-cycle math and comparisons.

Use Cases

Onboarding mid-cycle: Co-term new subscriptions to the contract renewal to avoid scattered anniversaries.
Annual customers adding seats mid-year (Advance): Prorated first charge + optional Process Refunds for permitted reductions.
Consumption/usage customers (Arrears): Bill after the period to capture final prices and all mid-cycle changes.
Migrations with partial terms: Use proration to cover the gap until the standardized renewal date.

Best Practices

Align refund policy: Turn on Process Refunds only where your credit policy allows (Advance).
Standardize Units & Mapping: Keep Monthly=1, Annual=12, etc., to ensure consistent proration math.
Use Co-termination by default: Consolidate renewals; reduce manual adjustments.
Complete Price Lists: Maintain Cost & Selling for each unit/currency you sell.
Respect QRB/Windows: For reductions, ensure Quantity Reduction Behavior and Reduction Window rules won’t block changes.
Test before go-live: Validate sample invoices (Advance and Arrears) with real products and dates.

Troubleshooting (Quick)

Symptom	Likely Cause	Fix
No proration on first invoice	Dates already aligned to cycle	Confirm misalignment; adjust Effective/Start date if needed.
Wrong amounts on prorated lines	Missing/incorrect Monthly Unit Selling Price	Verify product’s Price List Items & unit; clear/recalc pricing on Subscription.
Reductions blocked	QRB/Reduction Window or provider limits	Align QRB across linked subs; ensure within window; check provider constraints.
Co-term option missing	Added via different flow or permission limits	Add via Product Explorer with co-term enabled; verify user role.

Summary

Work 365 centers proration on the Billing Contract cycle and provides co-termination so new subscriptions share a renewal date.

Choose Advance for upfront invoicing (with optional automated credits).
Choose Arrears to bill after the period, naturally incorporating all changes made before the run.

Correct contract settings, unit mapping, co-term selection, and complete price lists produce accurate, transparent, and predictable invoices.