|Issue No. #6||21 March 2001||ISSN: 1532-1886|
What is Rating? What is Billing? by Carl Wright
As a provider of rating systems I often have to explain the difference between rating and billing. My role makes me very prepared to write about this subject. I originally wrote this article six months ago, but it was awful. I've since figured out a good way to explain the difference.
First, I use the following diagram to illustrate the different parts in the flow of usage events into bills and the different kinds of relationships between rating and billing software.
Figure 1. The major functions in rating and billing
The terms rating, re-rating, billing, and invoice formatting are left without boundaries above. They are in time-order but different business models change the amount of work that these functions perform.
The Importance of the Aggregate
There is an important distinction that defines the boundaries between rating and billing. The fundamental distinction is whether you have aggregate information available to you. Aggregate information includes the sum of the customer's spending, minutes of usage, bandwidth transported or other total amounts for the billing period. This aggregate information is needed to calculate volume-based discounts and it is often necessary when calculating taxes.
Figure 2. The conventional situation with unit rating
Rating is the calculation of charges for the customer that can be performed without knowledge of the aggregate. If a usage event can be priced without knowledge of any other usage event, this is Unit Rating. Each transaction can be rated as an independent unit. It also refers to the computers of the 1940's and 1950's where transactions were processed on unit record machines. Each transaction was a punched paper card. Telephone charges are largely unit rated. You can rate these in any order and at any time during the billing cycle with the results ending up the same. Each chargeable event stands alone.
The Most Common Scenario
Unit rating above is the most common scenario. Most telecommunications businesses rate their transactions and then after the billing period has ended, they perform the billing portion of the work. That portion includes charging for monthly recurring fees, volume-based discounts, cross-product discounts, taxes, and any other governmental fees. For one innovative service provider, Working Assets, this also includes collecting additional money from customer that is pooled together to support political or social causes. All of these "billing" tasks are done with the knowledge of the aggregate information for the billing period.
Having said that rating is done without the aggregate information, there is immediately an exception. In North American wireless telephony (probably in other places, too) a prepaid airtime allocation(free minutes) is included in the monthly recurring charge for the phone. The charge for airtime of a phone call depends on whether the airtime for the call is a part of the free minutes. If the call's airtime minutes are included in your free minutes allocation, then the airtime is free. If the airtime consumed prior to the call is greater than or equal to the free airtime allocation, the airtime is rated.
Maybe I should say that each call is rated in order, but that the charge varies according to the knowledge of the previous transactions for the billing period. In this case, the order in which you rate the calls affects their prices.
Figure 3. Example with aggregate rating processes
Here we have the aggregate traveling forward along with each usage event. The final aggregate plays a part in the volume discounting and taxing and the like, but an intermediate aggregate is used to rate each event. The rating result is now dependent on the order in which you process the usage events. This is Aggregate Rating. The aggregate needed is just the total usage of the resource being rated.
Most service providers unit rate the airtime and then back out the charges at the end of the billing period, but the above is the most streamlined method of rating.
Figure 4. The scenario in prepaid services
In a prepaid services environment we have have the final aggregate after every event. The taxes and other fees must either be included in the rating of every transaction or handled by some other process (i.e. taxes are included in the price for services). In this case rating and billing are done after each usage event. We even collect payment from the customer by reducing their deposit balance.
On occasion a service provider wants their volume discounts distributed back to the original usage events from which the aggregate totals were created. The usage events are re-rated based on the knowledge of the undiscounted aggregate information. New aggregate information results and the rest of the billing process can proceed.
Figure 5. The use of re-rating minimizes loss of business to price comparisons
This re-rating scenario has occurred when a service provider is losing business based on price comparisons where the competitor offers to compare the cost of a portion of the calls from the customer's bill. The competitor comes back with call-by-call comparisons showing the incumbent service provider is priced higher, but the results are false. The competitor has discounted their base rate. The incumbent provider is discounting the total bill based on usage, but this discount doesn't affect the price shown for any single usage event. In this environment, the service provider protects itself from this unfair comparison by re-rating calls based on volume discounts.
Most usage transactions in the world are processed in a unit rating environment. Even the "aggregate rated" wireless phone calls are usually unit rated and then the free minutes allocation are used to back out charges at the time of billing. The choice of unit rating is a choice that reduces complexity and reduces the costs of processing transactions. It also the traditional method of implementation.
Rating Matters Definitions
The dictionary has definitions for rate and bill, the roots of rating and billing. I’ve left out the other meanings for these words that don’t relate to the billing industry. Below I’ve added additional meanings.
rate n. 1. the charge for a specific quantity, such as the rate per megabyte downloaded v. 1. to determine the cost of a single service event in telephony, such as “The software rates the transactions.” 2. to evaluate the quality of a product or service, such as “The system rates the quality of service”.
rating v. 1. the process of determining the charge for services, such as “call rating” 2. — adj. 1. an object related to the process of charging for a service event, such as a “rating system”
bill n. 1. a document requesting payment for good or services, such as a “telephone bill” —v. 1. create a bill document, such as “ I bill your customer.” 2. calculate the whole charge for services of a defined period of time, such as “The program bills for services — adj. 1. an object related to a bill, such as “bill page”, “bill payment”, “bill run”
billing n. 1. the process of producing bills, such as “After rating, we run billing” 2. a specific event of producing bills, such as “the end of the month billing” adj. 1. an object relating to the billing process, such as a billing period, a billing run.
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