Today we are going to be talking about proration on your bill.
How many of you have signed up for phone service, opened up your first bill and thought to yourself things in which I cannot repeat on this blog?
It’s called “Proration” and it can happen to other services like your local cable provider or internet provider also. What you thought was going to be a bill for 39.99 may end up being 95.59. How did that happen?
Let’s start with the basics:
Proration is a per day rate based on your monthly billing cycle. You are being charged more than the regular monthly fee because you started a new service in the middle of that billing cycle.
Let’s do an example. Say your billing cycle closes on the 27th of each month and you decide to add a new feature: a $5.99 text messaging package. The customer service representative recommends you add the package on the 28th when your billing cycle starts over, but you insist that you need the text messaging right now. And right now is the 20th of the month.
The service rep reluctantly agrees and he or she warns you that on your next bill will have prorated charges. This proration will be from the 20th to the 27th or a total of 8 days. Shouldn’t it be 7 days? 27 days – 20 days = 7?
That’s not how your phone company is going to count prorated days; the day that you request the feature to be active will be the first day that you will receive the benefits of that feature, so you are charged for that day as well. So because you have to count the 20th as a day as well subtraction doesn’t work or you can use subtraction but add one day.
Now that you have the number of days you are being prorated for, which is 8 days, you have to calculate the per day rate. Typically, phone companies take your monthly recurring charge and divide by 30 days or what they consider to be the average number of days in a month. This is true even if the month you’re in has 31 days.
So take $5.99, your monthly feature charge for text messaging, and divide it by 30. What do you get?A very long number! I’m going to round up which makes it .20. Your per day rate = 20 cents.
Now you have your prorated days and your per day rate. This gives you the ability to find out your prorated charge for adding a new feature in the middle of your billing cycle. Take your prorated days which we determined to be 8 days and times it by your per day rate which we determined to be 20 cents. 8 x $0.20 = $1.60 .
That was an easy one. Right?
Now what about that huge bill you thought was going to be 39.99 and ended up being 95.59? This is where we get into proration combined with advanced billing.
Most service providers charge you your monthly fee in advance. If you started a cell phone service exactly on your bill cycle start date you would see 39.99 plus one month in advance for another 39.99. Any usage charges (such as going over your minutes) are not charged in advance–there’s no way of knowing what those charges would be obviously.