Copilot Credits are now the billing unit for advanced Microsoft 365 Copilot experiences. Microsoft splits Copilot into two tracks. Everyday AI stays under the per-user Copilot license, while advanced agentic work is billed by usage. For IT leaders, that shift turns AI cost into something you must govern, not just license.
This guide explains what Copilot Credits cover, how spending policies work, and the setup decisions to make before your users start asking for access.
What Copilot Credits cover
Microsoft describes two models that work together. The user subscription license (USL) covers everyday AI work at a fixed price, such as summarizing meetings, drafting documents, and analysis. Usage-based billing (UBB) covers complex, long-running agentic work and frontier models. In other words, the license is the foundation, and credits pay for the heavier work on top.
According to Microsoft Learn, services managed through usage-based billing in the Microsoft 365 admin center include:
- Cowork, Code, and advanced work in SharePoint and OneDrive, which also require a Copilot license
- The Work IQ API for custom apps and agents
- Copilot Managed Runtime and Teams Phone Agent
Microsoft also states that usage-based experiences still require a USL for access. Most importantly, admins must set up a billing policy before anyone can use them. That gives IT a clear control point, but only if the setup is deliberate.
How Copilot Credits billing works
Organizations can pay for Copilot Credits in several ways, and they can combine them:
| Billing method | How it works | Best for |
|---|---|---|
| Pay-as-you-go | Usage bills to a connected Azure subscription. | Pilots and uneven demand |
| Prepaid capacity packs | Credits are purchased in advance and consumed first. | Predictable, steady usage |
| Copilot Credit Pre-Purchase Plan (P3) | A pre-purchase layered on top of pay-as-you-go. | Larger committed spend |
When more than one method is in place, Microsoft consumes credits in a fixed order. Prepaid capacity packs go first, then P3, and then pay-as-you-go. Therefore, finance teams should understand that unused prepaid credits are spent before any metered charges appear.
Setting up the default spending policy
Setup for Copilot Credits happens in the Microsoft 365 admin center under Copilot, then Cost Management. A Global administrator or Billing administrator activates the default spending policy. After that, AI administrators or License administrators can edit limits, alerts, and billing methods.
The setup panel walks through a short list of choices:
- Billing method and subscription. Choose an existing Azure subscription or create a new one. Pay-as-you-go also needs a billing region and resource group.
- Monthly spending limit. Choose between no limit and a fixed monthly cap for the policy.
- Per-user limit. This step is optional, but Microsoft recommends it to prevent runaway spending by a single user.
- Alerts. Set email recipients and thresholds as a credit amount or a percentage.
- Auto-apply new services. This setting is on by default, so new services join the policy automatically.
- Scope. The default policy covers everyone. Use the customize option to limit it to specific groups or services.
Next, create additional policies for specific groups, such as a pilot team or a business unit that funds its own Copilot Credits. Each policy has its own limit, and only security groups can be used to scope users.
Governance decisions to make first
The admin center makes setup quick. However, the harder questions about Copilot Credits are about ownership and risk. Before you activate anything, agree on the following:
- Who pays. Microsoft notes that usage-based work is often funded by business units. Decide whether IT holds one central budget or charges back by department.
- Who gets access first. Start with a small pilot group rather than the whole tenant.
- Whether auto-apply stays on. Leaving it on is convenient. Turning it off means new services wait for review, which suits regulated organizations.
- How data is protected. Credits control cost, not data access. Your Purview labels and sharing controls still decide what Copilot can see.
That last point is easy to miss. If oversharing is still a problem in SharePoint, agentic tools will surface it faster. For that reason, review our Copilot readiness checklist before you expand access.
Monitoring spend after launch
The Cost Management area includes an Overview tab and a Consumption tab. Together, they show Copilot Credits usage by policy, user, group, service, or agent, plus policies and users approaching their limits. Read-only roles such as AI Reader and Global Reader can view these reports without changing policies.
In addition, Microsoft Graph offers a cost management API. Note that it reports usage in credits only, not currency, invoices, or forecasts. As a result, finance teams will still need the Azure billing view to see actual charges.
A simple monthly rhythm works well. First, review the top users and agents. Then, compare credit use to the outcomes each pilot promised. Finally, adjust limits before the next billing period starts.
Frequently asked questions
Do Copilot Credits replace the Copilot license?
No. Microsoft positions usage-based billing as a complement to the per-user license. Users still need a Copilot license to access the usage-billed experiences.
What happens when a policy limit is reached?
According to Microsoft, users covered by that policy lose access to the usage-billed experiences until credits reset at the start of the next month. Users can also request more credits.
Can we limit Copilot Credits to a pilot group?
Yes. You can scope the default policy, or create additional policies, for specific security groups and services. Each policy then carries its own spending limit.
How VTPMO can help
VTPMO is a Microsoft Solution Provider that helps regulated organizations adopt Microsoft 365 Copilot with clear governance. We help teams design spending policies, pilot groups, and Purview controls that hold up to audit. Explore our Microsoft services and AI adoption and governance services, or contact us to plan your Copilot Credits rollout.
Sources
- Microsoft Learn: Usage-based billing and cost management for Copilot Credits
- Microsoft Learn: Set up usage-based billing for Copilot Credits
- Microsoft Learn: Manage AI experiences enabled by usage-based billing
- Microsoft Learn: Understanding the user subscription license and usage-based billing
- Microsoft Tech Community: What is new in Microsoft Copilot, October 2026