Definition: Prorate is a calculation that results in a portion of certain total amount because of partial usage or consumption. It is a distribution that is fairly proportionate to what was used.
What Does Prorate Mean?
Contents
Prorating procedures are mostly employed in billing situations. A service that charges a monthly bill will prorate the charge if the beneficiary only enjoyed a few days of the month instead of the whole period.
Prorates are often calculated by dividing the total amount due by the minimum billing unit, which in case of monthly bills is normally days. After that, the result will be multiplied by the number of days actually used and the result will be the amount to be billed.
On the other hand, this is also the case for services that were fully paid and now require a reimbursement. For example, if the service is an annual subscription paid in anticipation and the customer wishes to cancel such subscription the company has to calculate how many months are left, divide the annual subscription in a monthly figure and multiply this amount by the number of months remaining.
Example
Logos Magazine is a periodic publication for sociologists that issues articles and research studies about the subject. The magazine has more than 54,000 subscribers within the U.S. and the billing department is in charge of managing the payment of these subscriptions. The company offers a 3-month, 6-month and 1-year subscription services.
Recently, the department received a subscription withdrawal request from a lady called Mindy. She paid in advance for a 1-year subscription and she is on the 8th month of it. The yearly subscription costs $75 and according the department’s calculation, the monthly cost of the service is $6.25. Since Mindy has 4 months left on her service the total amount to be refunded would be prorated to a total of $25.
