Prorate a fixed price contract line based on term

This topic is only applicable to termed contracts. A termed contract has both start and end dates.

This procedure is applicable for contract lines where the Flat/fixed amount frequency = "One-time" or "Use billing template".

If a customer wants to add on to their contract or upgrade/downgrade to a different product at some point during the contract term, Sage Intacct can automatically suggest a prorated price for the add-on or product change based on the number of days in the contract line or billing template term. You can also use a prorated price as a discount to a contract line.

See Prorate partial billing periods for recurring billing for contract lines where the Flat/fixed amount frequency = Include with every invoice.

About the item term proration calculation

Intacct uses the following factors to prorate a contract line and suggest a fixed amount:

• The number of days in the item's term
• The number of days in the contract line's term OR the billing template's term
• The billing price list entry for the item, which may include one or more of the following:
  • Any flat amount
  • Any included quantity
  • Any applicable quantity rates
• Any quantity entered on the contract line

Intacct calculates a prorated price as follows:

(Any flat amount + (any quantity that exceeds any included quantity * applicable rates) / Number of days in item term) * Number of days in the contract line or billing template term

Set up fixed price proration

To set up fixed price proration, do the following:

• Update items to allow prorated pricing
• Enter items in the billing price list

Update items to allow prorated pricing

For each item that you want Intacct to suggest prorated pricing, you need to define the default term (period and number of periods). Intacct uses the number of days in the item's term in the proration calculation.

The following table shows what Intacct considers the number of days to be in common item terms:

Period	Number of periods	Number of days
Days	30	30
Weeks	4	28
Weeks	26	182
Weeks	52	364
Months	1	30
Months	6	180
Months	12	360
Years	1	365

As you can see, there’s no difference if the item's term is 30 days or 1 month—Intacct uses 30 days for both. However, Intacct does differentiate between one year and 12 months. As Intacct considers one month to be 30 days, it considers 12 months to be 360 days. It considers one year to be the standard 365 days. An item's prorated price will be different if the term is one year as opposed to 12 months.

In order to enter item term information, Order Entry needs to be configured to enable start and end dates.

The following procedure demonstrates how to update items manually via the Item Information page. To update multiple items using a CSV file, see Import Inventory items.

To update items to allow prorated pricing:

1. Go to Contracts > All > Items.

2. In the Items list, select Edit next to the desired item.
3. In the Item Information page, select the Contract term tab.
4. Select the Enable start and end dates checkbox.
5. Select the Periods measured in option and enter the Number of periods.
6. Select the Allow prorated pricing checkbox.
7. Select Save.

Enter items in the billing price list

For each applicable billing price list, create an entry for each item for which you want to allow the price to be prorated. Intacct will prorate the flat amount and/or the rate for the contracted quantity. Learn how to create billing price list entries.

Prorate an add-on to an existing contract

If the customer wants to add on to an existing contract, you simply add a contract line to the contract for the item and make sure the contract line start/end dates or billing template start/end dates reflect the term to be prorated.

To prorate an add-on to a contract:

1. Open the applicable contract in Edit mode.

2. In the Contract page, make sure the Billing price list is pointing to a valid price list. If this field is blank, do the following:

   1. Use the dropdown list to select the desired billing price list.
   2. Select Save.
   3. Open the contract again in Edit mode to continue this procedure.

3. Select Add located above the top-left corner of the Contract lines table.

   The Contract Line popup window appears. The Billing method field should default to "Fixed price". The Start and End dates will default to the contract start and end dates.

4. In the Item field, use the dropdown list to select the desired item.

   If you selected an item with a valid price list entry, Intacct populates the Flat/Fixed amount field with an initial suggested price.

   If you selected an item that isn’t listed in the selected price list, Intacct displays the message, "No price found." Before continuing this procedure, create a price list entry for the item in the applicable billing price list.

5. If your company is subscribed to the Software Digital Board Book and this item should be included in MRR calculations, use the Change type dropdown list to select "Add-on MRR".
6. Enter the applicable Start and End dates for the contract line. These dates define the contract line term. If the Flat/Fixed amount frequency field = "One-time", Intacct prorates the Flat/Fixed amount based on the contract line term.
7. Enter the applicable billing information in the Billing section. As there are multiple ways you can choose to set up billing for a line item, see the Billing section in the Contract lines Field descriptions table for detailed information. If the Flat/Fixed amount frequency field = "Billing template", Intacct prorates the Flat/Fixed amount based on the billing template term.

8. If the contract is for a specific quantity of the selected item, enter the quantity in the Quantity field.

   Intacct updates the Flat/Fixed amount. This is the suggested, prorated price.

9. Use the Revenue template dropdown lists to select the revenue templates to use and use the calendar tool to select the desired Start and End dates for each applicable revenue template.

   Your Contracts configuration may use one or two sets of revenue journals. The field labels for Revenue template 1 and Revenue template 2 will display the journal symbols selected in the Configure Contracts page for Revenue journal 1 and Revenue journal 2.

10. When you have finished entering contract line information, select Save.

Prorate an upgrade or downgrade

If you need to upgrade or downgrade a contract line, you basically add a new contract line for the new item and cancel the original contract line. However, before you cancel the original contract line, you need to determine how you want to bill any remaining partial periods for the original line.

For example, say your customer is several months into a one-year service contract and now wants to upgrade to the next service level. Say the original contract term is January 1 through December 31, and the customer is billed monthly on the first of the month. The customer calls on May 8 and wants to upgrade their service as of today.

To prorate an upgrade or downgrade:

1. Determine how you want to handle the partial billing period for the original contract line. One option could be:
   1. Manually calculate the amount of the remaining partial period.
   2. Edit the contract line billing schedule to include the partial amount and assign it a scheduled billing date of the day before the new item will start. In our example, the Scheduled billing date would be May 7.
2. Add a new contract line for the upgrade/downgrade item with the applicable Start and End dates. In our example, May 8 would be the start date and December 31 would be the end date.
3. Edit the billing schedule for the new contract line as applicable. In our example, you might want to calculate a partial period for May 8 - May 31, schedule it to bill on June 1, and adjust other schedule entries as applicable.
4. Cancel the original contract line as of the new item start date. Ensure the cancellation date is after the last scheduled billing date. In our example, the Cancellation date would be May 8.
   For contract lines that have at least one revenue template where the Recognition method = "Project percent complete" or "Task percent complete": Canceling one or all contract schedules is permanent. You cannot continue schedules that were canceled in error.

Use a prorated price as a discount

Say you sell a 12-month service plan, and this month you’re offering two months free to new customers. There are many ways you can document this kind of a discount. This procedure shows how you could use a prorated price to apply a discount. See Discount a contract line for other discount examples.

To use a prorated price as a discount:

1. Add the contract for the new customer with start and end dates that cover the item's standard term. In our example, the item's term is 12 months.
2. Add the contract line and accept the default start and end dates.
3. Add a billing template to the contract line with start and end dates that cover a term that's less than the item's standard term. For example, set the billing template start date two months after the contract line start date and set the billing template end date to the same date as the contract line end date. In this scenario, the billing template start/end dates drive the proration calculation. The billing template could be set up as one of the following:
   • 10 months with each month set to 10% of the total billing. You could then edit the billing schedule to add two scheduled dates for 0 if you wanted the 0 amount to appear on the invoice for the first two months. The customer would receive two invoices for 0.00 and then receive 10 invoices at the regular price.
   • Four quarters, where the first quarter is set to 10% of the total billing and the remaining three quarters are set to 30%. This applies the discount to the first quarter's invoice, and then the customer would receive three quarterly invoices at the regular price.

   Learn more about billing templates.

Prorated contract lines and renewals

The Pricing option selected on the contract renewal template drives the price for a contract line when it is renewed. You can also optionally override the renewal template's Pricing option by specifying a custom price by contract line for one or more renewals.

Consider partial term contract lines when setting up contract lines for renewal. For example, say you sell a one-year service contract that's priced at 1,200 per year in your billing price list. You add on a partial term contract line for the service item to an existing contract. You set the contract line's Flat/fixed amount frequency to Use billing template and the Flat/Fixed amount to 700.00.

The following table shows examples of what the renewed contract line price would be depending on the Pricing option on the renewal template:

Pricing option	Flat/Fixed amount in renewed contract
Same as original	700.00
Suggested price	1,200.00
Custom	<custom renewal amount entered in the Renewal tab on the contract line for next renewal>
Mark up 5%	735.00

Learn how to set up a partial term contract line for renewal.

Learn more about renewal templates.