Managing Contract Terms
Note
The Contract Terms feature is available only on select plans. To know more, visit Chargebee's Plans and Pricing page.
As your business grows and you engage with high-value customers, each new prospect introduces challenges, such as unique price points, terms, and conditions. Offering contractual support, including lock-in periods at the subscription level, can address these needs. However, managing complex billing workflows—such as automatic renewals and cancellations tailored to specific subscription terms—can be a significant challenge.
Chargebee enables you to retain customers in subscriptions for a specific number of billing cycles. You can define contract terms for each subscription and automate all the subscription workflows based on their respective terms. Chargebee supports the following workflows for managing contract terms:
- Override the price of a plan at the subscription level.
- Specify if the subscription being created is on contract.
- Define the contract renewal terms.
- Define the cancellation terms.
- Apply a termination fee.
Chargebee allows you to create subscriptions with flexible contract terms based on your plan's billing frequency and the number of billing cycles. Here's a simple formula to understand how a contract term is calculated:
Contract Term = Billing Frequency of Plan Ă— No. of Billing Cycles for Subscription
Here are some examples:
Example 1:
To create an annual contract and charge the customer on a monthly basis, create a monthly plan (that generates invoices once every month) and configure the number of billing cycles for the subscription to be 12.
1 Year Contract Term = 1 month plan Ă— 12 billing cycles
Example 2:
To create a 3-year contract and charge the customer on a quarterly basis, create a quarterly plan (that generates invoices once every 3 months) and configure the number of billing cycles for the subscription to be 12.
3 Years Contract Term = 3 months plan Ă— 12 billing cycles
Let's look at how Chargebee helps you with automatic renewal and cancellation for subscriptions that are created with contract terms.
Renewal Workflow
Introducing contract terms to subscriptions unlocks more business opportunities. However, each of these subscriptions is unique based on your business needs and the customer's needs. Renewing these subscriptions manually can become more tedious.
You can configure automatic renewal of subscriptions with contract terms in Chargebee. You can move customers from a subscription with a contract to one without a contract, without having to create new subscriptions for them. You can define rules in Chargebee for how subscriptions on contract should renew:
- Renewing subscription for the same duration.
- Renewing subscription for a different duration.
- Canceling contract and the subscription.
- Canceling contract but continuing the subscription.
This not only reduces manual intervention for you during renewals but also reduces customer churn by allowing your subscriptions to continue as active.
Cancellation Workflow
Ideally, a subscription that is created on contract for a specific number of billing cycles should not be canceled during the contract term. It defeats the purpose of creating contract terms—to bring stable revenue to your business and to make up for all the price cuts you took early on.
Chargebee gives you complete control to handle cancellations for your customers, as you see fit. When your customers want to cancel their subscription, you can opt for one of the following options:
- Allow them to cancel only at the end of the contract term—The cancellation initiated during the contract period will only cancel the subscription at the end of the contract term, and the subscription will not renew.
- Terminate Immediately—The contract and the subscription are terminated immediately.
In both cases, Chargebee allows you to decide how you want to handle credits for the unused period in the subscription.
Cut-off Period for Cancellations: You can configure a cut-off period for customers before which they can cancel their subscription (contract). The cut-off period gives you some lead time to manage your business operations around cancellation. For example, you can set the cut-off period as one month or ten days prior to the subscription auto-renewing. Before this period, your customers can cancel the subscription if they do not want it to renew. When they do cancel, you would have enough notice and time to address it.
A subscription on contract can be canceled in one of the following ways:
- Chargebee Interface: A subscription on contract can be canceled by your users in Chargebee from the subscription details page.
- Self-serve Portal: A subscription on contract can be canceled by your customers from the self-serve portal, if you have enabled "Allow customers to cancel subscriptions" under portal settings for contract terms.
Note
- Termination of subscription on contract is possible only from the Chargebee Interface.
- When a customer cancels a subscription on contract from the self-serve portal, the subscription will be canceled at the end of the contract term only.
- API: A subscription on contract can also be canceled using the API.
Contract Termination & Fee
Chargebee allows you to charge a termination fee for customers who want to terminate a subscription on contract immediately. You can create a non-recurring addon for the termination fee and add this to the subscription to charge the customer whenever the contract is terminated.
However, you have the flexibility to override the termination fee on a case-by-case basis. You can use the change subscription option to either reduce the fee or remove the addon to waive the fee for customers. This opens more avenues for negotiation, which could result in retaining the customer.
Apart from handling the above workflows, contract management in Chargebee also allows you to capture the contract term value and provide flexibility to your customers to upgrade/downgrade the subscription during the course of the contract term.
Configuring Contract Terms
To set up contract terms in your Chargebee site, click Settings > Configure Chargebee > Billing LogIQ > Customers & Subscriptions > Contract Terms and click Enable.
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In Contract Terms, select how you want the subscriptions to renew, when the contract term ends. You can select from the following options:
- Contract renews: a new contract and subscription gets created for a specific number of billing cycles.
- Subscription renews without a contract: The subscription will remain active without the contract terms.
- Contract and Subscription end: This stops the subscription and the contract upon renewal.
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When you choose to renew the contract, a. Select the number of billing cycles for which the subscription should renew. You can either choose Same as specified in Contract or choose Custom and specify a value. b. In the Cut-off period for cancellation, specify the number of days before the Contract Renewal/Contract Expiration, when the customer can cancel their subscription. You can override all of these settings at a subscription level, while creating or modifying the subscription.
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Under Subscription termination, you can select how you want to handle credits for the unused period when a subscription on contract is terminated. You can select from the following options:
- Don't Issue Credits
- Issue Prorated Credits
- Issue Full Credits
Additionally, you can add conditions to handle this differently based on where the subscription cancellation is being invoked. Click the more icon and add conditions to this rule. Select a source and add the corresponding behavior. For instance, you can issue full credits when your users invoke cancellation from the Chargebee Interface; otherwise, for all customers who cancel subscriptions from the self-serve portal, you may choose not to issue credits. You can turn the toggle on/off to allow/lock the overriding capability. When overriding is allowed, users will be able to change this global setting at the subscription level.
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If there are existing unpaid invoices for the subscription that is being canceled, you can choose to
- Retain as unpaid: No further action will be taken.
- Attempt Collection: If Auto-collection is ON for the customer, an automatic charge for the due amount will be attempted on the available payment method.
- Write off: The amount that is due will be written off. Credit notes that get created for the write off will not be sent in response.
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Under when do you want to cancel the subscription, you can select:
- Terminate immediately
- End of contract term
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Under Advanced Settings, if there are existing unbilled charges for the terminated subscription, you can select:
- Invoice - An invoice gets raised for the unbilled charges, and when the auto-collection is turned on for the customer, an automatic charge for the due amount is attempted on the available payment method.
- Delete - The unbilled charges get deleted.
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And finally, you can turn the toggle on to apply refundable credits/excess payments to unpaid invoices.
Once you are done, click Apply to save your configuration.
Go to Settings > Configure Chargebee > Checkout & Self-serve Portal > Portal. You can configure fields that customers on contract subscriptions will see on their self-serve portal.
Once you are done, you can start creating subscriptions with contract terms.
Creating Subscriptions with Contract Terms
To create a new subscription with contract terms, navigate to Subscriptions > Create Subscription. In the new subscription details page, once you have specified the customer details, you can enable contract terms for this subscription.
New fields for the subscription contract terms are displayed with values auto-populated from the global settings for contract terms. You can modify these values based on your requirement for each customer/subscription.
Once you click Create Subscription, your subscription gets saved with corresponding contract terms.
Note
- You need to specify the number of billing cycles in order to apply contract terms for the subscription.
- Contract terms, once applied to a subscription, can be removed from the existing subscription as part of the reactivation workflow.This reactivation flow involves the following steps:
- Terminating the contract term either immediately or scheduling the termination at the end of the contract term.
- Canceling the subscription.
- Reactivating the subscription without the contract term.
- You cannot pause a subscription that is created on contract terms.
- You can raise advance invoices for subscriptions on contract within the current contract term.
The subscription details page for a subscription created on contract highlights the contract-related details such as the number of days left on the contract along with the date of renewal or expiry.
New workflows related to the contract terms are added to the actions for subscriptions.
- Bill Future Renewals - Select this option to create an advance invoice for the customer's upcoming subscription renewals. Ensure that the number of future renewals falls within the contract term.
- Cancel Subscription—Clicking this action displays a pop-up where you can select when you want to cancel the subscription: at the end of contract term or immediately.
- You can specify how you want to handle credits for the unused period. This value is auto-populated based on your global setting, but you can modify it here to suit the customer case.
- When you choose to terminate immediately, you can specify a termination fee that will be charged for the cancellation.
Note
- You can create contract terms via Hosted Pages API and while creating new subscriptions using Create Checkout.
- This feature is supported only in the In-app Self-Serve Portal and is not supported in older versions of hosted pages.
- Once you enable Contract Terms in your Chargebee site, you can enable the Contract Terms while creating a quote.
Editing Subscription to add Contract Terms
When editing a subscription in Chargebee to include contract terms, it's important to note how the start date of these terms is determined. By default, the start date for contract terms aligns with the beginning of the current subscription term. This means if the subscription's start date differs from the current term start, the contract terms will begin from the current term start date, not the original subscription start date.
The start date of contract terms is based on the following scenarios:
- Subscription changes are applicable immediately: If changes are applied immediately (without waiting for the next subscription renewal date), the contract term start date will match the start date of the current subscription term.
- Changes applied at next subscription renewal: If changes are scheduled to take effect at the next renewal date, the contract term start date will align with this future renewal date.
Emailing Customers who are in Contract
You can send emails to customers who are in contract and notify them when their contract ends, renews, or terminates. Go to Settings > Configure Chargebee > Customer-Facing Essentials > Email notifications. Under Subscription Management, click Subscriptions with contract terms and enable the notifications that you'd like to send.
Disabling Contract Terms
To disable contract terms in your Chargebee site, navigate to Settings > Configure Chargebee > Billing > Contract Terms and click Disable.
Note
- You cannot create subscriptions on contract once you disable the Contract Terms feature in your Chargebee site.
- Existing subscriptions that are still on contract will continue to follow the contract terms as per your previous settings.
FAQ
1. Can subscriptions with contract terms and subscriptions without contract terms be created for a single plan?
Yes, you can create and manage subscriptions with contract terms and subscriptions without contract terms for the same plan.
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