Billing a monthly fee with fixed month contracts

There are a number of reasons why you might want to bill a client a fixed monthly fee, for example care annuities typically pay out a set amount each month, or you may offer private clients an option to pay a set monthly amount.

This article covers how to set up a contract to bill a client a set amount each month whilst working to a weekly rate.

Months vary in length

Care is typically billed at a daily or weekly rate: units with a fixed number of days (e.g. 1 day or 7 days). However, the number of days in a month varies and in the case of February is one day longer in a leap year. This appears to present a problem as depending on the number of days in a month we'd need to charge a different daily/weekly rate in order to bill the same amount.

Daily/weekly rates that vary by month and year are harder to work with than a fixed rate and so instead CareHQ uses the concept of a fixed month.

What is a fixed month?

Whilst the length of a month varies, the number of months in a year do not, and so a client being billed a set amount each month will be billed 12 times in any given year. In order to bill the client a set amount each month we can therefore divide the number of days in a year by 12 to calculate the number of days we should be charging for each month (regardless of the length of the month).

You might be wondering about leap years at this point because every 4 years, instead of 365 days, the year will contain 366 days. We handle this by treating each year as having 365.25 days, and in doing so we can establish the number of days to bill for in any given month regardless of the year or month.

Calculating monthly fees

You may well be wondering how to set a monthly fee based on a weekly rate or how to work out the weekly contribution based on a monthly amount. Having to calculate these figures each time would be a time-consuming task, so CareHQ takes care of that for you.

Whenever you add or update a billing contract you'll see there are two options for setting a fixed month contribution;

• Fixed month set as a weekly fee
• Fixed month set as a monthly fee

At this point it's worth noting that as you might expect fixed month fees can only be created for billing parties with a billing period set as monthly. Let's take a look at when to use these options and how they work.

Calculating the monthly fee based on a weekly rate

If you know the weekly rate but want to charge a monthly fee;

• first set the Fee contribution to the weekly rate you want to charge,
• then set the Per field for contributions to Fixed month set as a weekly fee,
• the Monthly fee contribution will be calculated and displayed for you.

Calculating the weekly fee contribution based on a monthly amount

If you know the monthly contribution you'll receive (for example from an annuity) but you want to know how much that will contribute to the weekly rate for the resident;

• first set the Fee contribution to the monthly amount you will receive,
• then set the Per field to Fixed month set as a monthly fee,
• the Weekly fee contribution will be calculated and displayed for you.

What happens when a billing period starts or ends part way through a month?

When a billing contract starts or ends part way through the month, for example if a resident leaves on the 10th of June, then the billing party will only be billed for part of the month. In our example the billing party would be billed for 10 days.

The daily rate they are charged will depend on how your account is configured. There are two options available; divide by month and divide by year.

Divide by month

The divide by month rule calculates the daily rate by dividing the monthly fee by the number of days in the month.

So in our example, if the monthly fee is £3,000, there are 30 days in June so the daily rate would be £3,000 divided by 30 which is £100, and the billing party would be charged for 10 days generating a bill for £1,000.

Divide by year

The divide by year rule calculates the daily rate by dividing the monthly fee by the length of a fixed month (which we defined earlier as 30.4375 days).

So in our example, if the monthly fee is £3,000, the daily rate would be £3,000 divided by 30.3475 which is £98.4413 (we use 4 decimal places when calculating daily rates), and the billing party would be charged for 10 days generating a bill for £984.41.