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Here's what has happened so far: Membership fees increased at the beginning of the year. A user was able to renew prior to the increase being implemented in CiviCRM. The situation has been explained to the user, the payment refunded and the membership status set to cancelled.

When the user goes to the membership renewal page they see a message saying that as the membership has been cancelled it can't be renewed. I don't want to delete the membership because that would also delete the contribution record, so I'd lose the record of the fact that a payment was made and refunded.

What is the best practice approach in this situation?

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One fudgy option would be to set it to 'override = Grace' then let them renew, then clean up by removing the override status

The fact that a Cancelled membership causes problems for people trying to then renew/complete have been raised in JIRA. See this and this

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