In property management systems (PMS), billing cycles play a crucial role in calculating rent and generating invoices for tenants. When bookings are created based on offers, and the rate interval is set to MONTHLY, the calendar monthly billing cycle is automatically triggered. This article explains how the PMS handles these prorations, particularly in the first and last months of a booking, ensuring that tenants are only charged for the nights they actually stay.
How the Billing Cycle Works
Calendar Monthly Billing Cycle:
When a booking is generated based on an offer and the rate interval is set to MONTHLY, the PMS creates a draft invoice for each full monthly billing cycle.
This billing cycle aligns with the calendar month (from the 1st to the last day of the month), even if the tenant’s stay begins or ends mid-month.
Proration in the First and Last Months:
Since tenants do not always arrive on the 1st day of the month or leave on the last day, the system applies proration to the rent for the first and last months.
Proration ensures that tenants are billed fairly for only the nights they stay. Instead of paying for an entire month, the rent is calculated based on the exact number of nights stayed.
Proration Formula
The proration formula used by the system to calculate rent in the first and last months of a booking is straightforward:
Let’s break down the formula:
Monthly Price: This is the full rental rate for one calendar month.
Nights Stayed: The actual number of nights the tenant stays in the property for that partial month.
Total Days in the Month: The total number of days in the relevant month (e.g., 28, 30, or 31 days, depending on the month).
Example Scenario
Imagine a tenant books a property with a monthly rent of $3,000 and moves in on October 10th. The tenant will stay until November 20th, leaving them with partial stays in both October and November. Here's how the system calculates the prorated rent for these two months:
October (Tenant moves in on the 10th):
Monthly rent: $3,000
Nights stayed: 22 (from October 10th to October 31st)
Total days in October: 31
The tenant will pay approximately $2,129.03 for October.
November (Tenant moves out on the 20th):
Monthly rent: $3,000
Nights stayed: 20 (from November 1st to November 20th)
Total days in November: 30
The tenant will pay $2,000 for November.
Benefits of Proration in Monthly Billing Cycles
Fair and Transparent Billing: By applying proration, tenants are only charged for the exact number of nights they stay in the property. This approach is both fair and transparent, ensuring that tenants are not overcharged for partial stays.
Simplified Invoicing Process: The PMS automatically generates draft invoices based on these prorated amounts, reducing manual calculations for property managers and minimizing the risk of billing errors.
Flexibility for Tenants: Proration allows tenants to have flexible move-in and move-out dates without worrying about paying for an entire month when they only occupy the property for part of it.
Prorations in the context of a calendar monthly billing cycle play an essential role in ensuring that tenants are billed accurately and fairly for their stay. With the formula based on the number of nights stayed relative to the total days in the month, the PMS efficiently generates draft invoices that reflect only the actual duration of the stay. This system benefits both tenants and property managers by providing clarity, flexibility, and accurate rent calculations.