Accounting for Prorated Charges

Matt Lewellyn Accounting

Prorated charges can present a significant obstacle to achieving your monthly budgeting goals. Not only are these charges somewhat inconsistent across different carriers, but they also have a tendency to appear at the worst possible time (usually right after you’ve explained to your boss that there should be no surprises in this month’s operating expenses). As most folks are aware, these charges occur when adding new services or even switching existing services mid-month. Though carriers can present these charges in a variety of ways, there are a few things that can be done to prevent a month in which your telecom expenses skyrocket.

First and foremost, AT&T defines proration as dividing charges on your bill proportionately, so that you are only charged for the days of the month in which you use the new service. For example, if you put a new monthly data plan into effect on June 20 (for an established billing date of June 1), you should only be responsible for having to pay charges from June 20 – June 30, not the entire month of June. To calculate prorated charges, you must take the monthly charge for a particular service and break it down into daily charges. Per the example above, if you added an extra few gigs of data to an existing line at the rate of an additional $50 per month, you must first establish what the daily expense represents. You must first take the $50 and divide it by days per month (use 30 as a rule), giving you an expense of $1.66 per day. The next step is to multiply this daily rate by the number of days that the service is actually in use. So, for this example, June’s prorated charges should amount to $18.26 (11 days at $1.66 / day). Now, while it is obvious that eighteen bucks shouldn’t be much of an issue, picture that same data plan being added to fifty, or even a hundred of your company’s devices in one month’s time. This can be the recipe for a very uncomfortable meeting when it comes time to review the month’s performance. Furthermore, new landline or data services can sometimes take up to two months to appear on your monthly statement, which could bring quite a nasty surprise if you aren’t prepared for it. Here are five tips to help ease the burden that prorated charges can create:

  1. Schedule regular meetings (monthly if possible) with your IT Department, or whoever is in charge of service procurement, to discuss any new services that have recently been, or will be added in the upcoming month. At the very least, this should provide an avenue for forecasting well in advance of receiving the bill.
  2. For cellular service, you can mitigate prorated charges by having new services go into effect on the first day of the corresponding account’s billing date. By doing this, the first bill you receive after adding services should be reflective of an entire month’s expense, taking partial monthly charges out of play altogether.
  3. Though carriers can be sporadic in the way they bill new landline / data services, continuously stay on top of any new locations your business has recently added (or closed) and establish a monthly budget for those locations prior to opening. If the carrier waits to bill new services for a month or two (Earthlink especially is notorious for this), at least you will have established a monthly baseline for the expense. If no charges for new location service show up in the current month’s bill, rest assured they will be doubled on the next month’s billing. If you’ve set up a budget in advance of receiving the bill, you might have $0 in actual expenses for the current month, but that budgeted amount can be rolled forward to the next month when charges finally post.
  4. Keep in mind, for any terminated services, you will still be billed in the future for any days where usage occurs within the billing cycle.
  5. Pay close attention to whether your carrier bills in advance or in arrears. For carriers who bill in advance (Sprint for example), if there is proration for changing your plan in the middle of a billing cycle and you have already been billed / paid for previously existing services, you should receive a credit for those charges on your next bill as the new services come into effect. Likewise, if you terminate a line with a carrier which bills in advance, you should receive a reimbursement / credit for the days of the month in which service was not used on your next billing cycle.

In conclusion, advance planning is always the major key to avoiding prorated charge surprises. Ultimately, being aware and on top of changes in service is the best way to know what to expect from the carrier and ease the burden created by prorated


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