Note 20: Common processing protocols

Posted: 12 November 2006

By following common processing protocols, billers can assist customers in understanding their bills, make confirming their billing systems' accuracy easier, and operate a simpler billing process.

These common processing protocols include:

Date Ranges: Specific periods for which a value or function is available or active.
Effective Dating: Using a transaction's date to select the appropriate processing or rate, whether in the future or the past
Pro-rata Charging: Levy only a proportion of a charge's full value based on the fractional time it is available
Charging Granularity: Select the granularity (coarse / detailed) at which charges are levied
Change of Rates (Recurring Charges): Accommodate a rate change at any time by charging the appropriate amount either side of the rate change
Change of Rates (Usage Charges): Allows the rates charged during a long duration transaction to change across different time (rate) periods

Date Ranges

Commonly a customer is charged for the elapsed duration they are connected to a biller's network or receiving a service, commencing when connected and ending at its termination. The duration described by the date range of that connection will be used in billing to calculate the 'per day' or 'per month' charge to be levied. Where billing is performed at a granularity below 'calendar day', the 'time of day' that a customer's service commences and ends can also contribute to how much they are charged (e.g. car parking billed via a tollway's electronic tag).

The inclusion of date ranges (including start and end dates and times) on customers' bills allows them to validate the billed amount against their understanding of what took place (i.e. services commenced / disconnected on certain dates). A bill whose basic facts are presented correctly is more likely to be treated with confidence (and reflect positively on the biller's overall network), reducing the number of operationally expensive bill disputes and customer inquiry calls. Conversely, if the dates are incorrect a customer can quickly describe what is wrong and obtain appropriate redress. Date range boundaries can also be used when routing externally sourced non-recurring and network usage charges to the appropriate customer's bill.

Along with date ranges, the intra-day 'time' is also important when customers change networks (e.g. churn between mobile phone networks, or churn between virtual network operators on the same network (e.g. VNO)), perform valid transactions during the day of the change, and each transaction must be reflected on the correct 'network's bill' (before and after the network transition). Examples where this can apply include mobile phone churns and phone calls, electricity providers and interval meter readings, and change of vehicle ownership and tollway journeys measured by electronic tags.

Effective Dating

There are many situations in billing where the appropriate action to perform or processing value used changes over time. Some of the most important examples where this is used are the rates selected when determining a charge's price.

Effective date processing treats a transaction's date as an historical (or future) index into the values or processing 'effective' on that date, and allows processing to be applied 'as if' the transaction had been received and processed on the transaction's actual date rather than an earlier or later date.

Transactions are often delayed, reaching billing some time after the calendar date on which they took place. Even a delay of one day makes a transaction historical. Rather than use the rates active on the date when transactions are received for processed by billing, effective dating allows the rate appropriate for the date of the transaction to be retrieved and used instead. This ensures the correct value can always be calculated according to what customers expect (based on the published rates of the time) and removes 'time of receipt' as a 'complexity increasing' consideration when calculating, validating and explaining how prices are determined.

When billing extends across future dates (a common occurrence for 'billed-in-advance' recurring charges), future rate changes can be included when calculating a charge's final price.

Pro-rata Charging

Customers who connect to a biller's network or services for less than a full billing period (due to late connection or early disconnection), may only be charged for that proportion of the (say) monthly charge's value calculated using their actual connection duration. Pro-rata charging is applied whenever part periods are found including at the start of a new charge, the cancellation of an existing charge and (discussed below) when the recurring rate for an existing charge is changed.

For example, pro-rata processing can calculate the charge for the applicable fraction of the full billing period. A monthly bill that includes six days (i.e. ~20% of a month) for a new network connection might bill only 20% of the full monthly rate for the connection's initial part period, and charge the full monthly amount for subsequent billing periods.

Pro-rata charging is also employed when aggregated network consumption occurs across a time period that includes a rate change. For example, a quarterly (93 day) electricity meter reading that covers a '$ per kWh' rate change may be divided (using a pro-rata approach) into two parts, with the first time period charged on a pro-rata basis for 51 days (i.e. 51/93 of the consumption) at the old per kWh rate (say ending on 31 December), and the second time period of 42 days charged at the new per kWh rate (between 1 January to 11 February).

Non-recurring (e.g. installation) and non-duration network usage (e.g. SMS, tollway journey) transactions are not usually pro-rated since they do not include the concept of 'duration'.

Since the number of days in a month varies, billers must make a choice on how to perform the calculation of a 'monthly' proportional rate, and may use a number of methods including:

Declare all months to have 30 days: This allows calculations to be performed using a fixed length month.
Declare all months to be fractional part of a year (365/12 days long): Rather than choosing a fixed number that aligns with only four of twelve months, calculations are performed using a 'yearly average' month (i.e. 30.41667 days).
Use the actual number of days in the month: This recognises that a six day billing period will reflect a different fraction of a month's 28, 29, 30, or 31 day duration.

The actual approach may be predetermined by local law or the biller's industry regulator. Where possible, a consistent corporate approach will simplify reconciliation and investigative efforts when problems occur.

However, where different product networks are billed together (e.g. water, gas and electricity), regulation or law may require different pro-rata methods are used for each network. Alternatively, billers might use the same billing environment to cover multiple jurisdictions with different regulators who each enforce their own method, requiring multiple methods to be included accurately and specifically within the one billing environment.

Charging Granularity (Recurring charges)

Charging granularity can range from 'fine-grained' when pro-rata charges are applied on a calendar day basis, to very 'coarse-grained' when charges have minimal pro-rata processing applied and are levied for complete months even when customers are connected for only a part of (say) a calendar month.

Fine grained charging allows a customer to be charged for the exact period of 'network consumption or access' and no longer, and supports a marketing message that the customer won't be 'overcharged' for time they didn't use. Coarse grained charging ensures that the biller collects a full measure of revenue from each customer and can support an 'all you can eat' (with no refunds) marketing message.

Within this spectrum lies a middle ground that allows scope for 'half-month' or 'per week' billing where a customer does not receive the benefit of, nor is billed for, a full month's service/access.

When a customer incurs a new recurring charge, cancels a recurring charge (or the biller cancels it for them), or is subject to a rate change on the recurring product, the product's charging granularity can be important and can vary in a context sensitive manner. A nuanced pricing definition can allow for a different charging granularity (e.g. fine grained) when new purchases are made or rate changes are applied, and a different (e.g. coarse) level performed for service cancellations when refunds for unused time are not given.

Charging Granularity (Usage)

Usage can also be billed using different levels of granularity. For example, when billing is performed on a time basis, the charging blocks / granularity can include measures of 'per second', 'per six seconds' (tenths of a minute), 'thirty seconds', 'per minute', 'per hour', and 'per day' (calendar or 24 hour).

Examples of granularities employed by other networks include 'per kWh' (electricity), 'per Gigabyte' (ISP), 'per kiloliter' (water), 'per user' (software licence, outsourcing fee), 'per financial transaction' (banking), or 'per download' (content).

The granularity level employed may be chosen for ease of understanding and accounting (e.g. charging per 'Gigabyte' downloaded rather than per '1,073,741,824 bytes' downloaded), or forced upon billing by the limits of measurement available from the network (e.g. electricity measured per kWh rather than by individual 'Watt hour').

Change of rates (Recurring charges)

From time-to-time the rate charged for a recurring product will vary and need reflecting on the bill. The approach taken can depend on whether the product is charged 'in arrears' or 'in advance', how the rate change aligns with billing dates, and the desired customer impact. Pro-rata charging is commonly used to reflect the old and new rates and applicable date periods.

Charges billed 'in arrears' can reflect the old and new rates (with their appropriate date periods) on the customer's next bill. When billed 'in advance', a customer has already seen and been billed at the old rate, and this previous amount must be taken into account when applying the new rate.

Presenting a rate's change to the customer can be 'hidden' as a consolidated amount to reduce a bill's detail (and increase a customer's possible confusion), or presented separately for each time period to explicitly outline how the change was performed. Changes to billing 'in advance' charges can be presented as a separate credit at the old rate and a charge at the new rate (with the effective date ranges), or be offset against one another and presented as a consolidated amount.

Alignment of a rate change with customers' bill date can influence how a rate change is presented since, if the rate change aligns with bill dates, there may be no 'rate change affected' dates that fall between customers' bills. For example, when the rate of a service charge changes on a quarterly water bill, if the change is planned for and aligns with the quarterly billing cycle (to all customers), no transition arrangements between rates need to be made.

Such a 'clean' rate transition is more difficult when a biller's customers are billed at different times in the month and billed with different frequencies (i.e. monthly, quarterly). In this case a rate change is likely to affect many customers and cut across different bill frequencies. In this situation, an approach that presents the rate change to the customer will be required.

A rate change is likely to happen in billing, and it is better the biller (and the bill layout) is prepared for it. This preparation includes addressing all of a biller's product offerings, any regulatory requirements, differences based on customer segmentation, operational impacts due to scale (e.g. doubling the size of paper bills), and timing of customer and market communications.

Change of rates (Usage charges)

Whilst recurring charges may change occasionally within a year, it is common for usage transactions to apply across a rate change boundary. e.g. a phone call that spans a change from peak to off-peak rates.

Since usage rate changes are more common, the solution applied is usually different. For example, it is common for the separate components of a phone call's peak and off-peak charge periods to be consolidated into a single charge for the entire call. If these call components were not consolidated, even the simplest phone bill would become a long and complex document.

Tags: Billing, Recurring Charges, Usage, Prorata, Pro-rata, Effective Date, Part Period