pro-rata refund
Definition
A pro-rata refund is a partial refund calculated based on exactly how much of a product or service a customer did not use. Instead of getting all their money back or none of it, the customer gets back a fair share that matches the unused portion they paid for. Think of it as a math formula that splits the cost evenly across the time period or quantity, then refunds only the part that went unused.
Example
If a customer pays $120 for a one-year software subscription but cancels after three months, a pro-rata refund would give them back $90 because nine months of service went unused.
Watch Out
Your refund policy needs to clearly state whether you offer pro-rata refunds or no refunds at all, because customers will assume they are entitled to one if your contract is silent on the matter.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.