Invoicing and revenue recognition

Tasks in Project Invoicing and Revenue

These are tasks that can be performed in Project Invoicing and Revenue:

• Maintain billing information for billable projects, including funding source information and contract amounts
• Assign a customer to a contract
• Specify the percentage of the project that is billed
• Calculate multiple revenue recognition methods
• Create project contract retainers
• Assign and calculate contract fees
• Specify a posting project billing maximum amount
• Remove transactions and put on hold
• Assign and calculate funding source administrative fees or discounts
• Specify revenue recognition parameters independent of the billing cycle
• Assign and calculate posting project indirect burden transactions
• Create funding groups for multi-funded contracts
• Create billing groups so that funding sources can be selected for invoicing and revenue
• Assign a project contract to use front end splits
• Assign a program income type to a project contract and the option to override the program income type on the posting projects within the project contract
• Specify a percentage of the project contract invoice for retainage
• Transfer unbilled transactions in whole or partial from one project to another
• Create bill in advance transaction
• Specify an invoice maximum amount when generating invoices
• Specify an override billing method of Pass Through
• Add third party invoice print integration
• Add the ability to edit an invoice line amount, unit and rate
• Optionally, regenerate the printable invoice after changes to line items

Project funding

Project funding sources on a contract can be grouped using the funding group field. When a federal grant requires a match, the grant and the associated match funds must be spent simultaneously. If funds are not spent simultaneously, then the grantee can lose the grant award. The federal grant and the associated match funding sources have the same funding group.

Project funding sources on a contract can be assigned a group for invoicing and revenue using the billing group field. When invoices are generated or revenue is recognized, if you specify a billing group, then only the funding sources with the billing group assigned are included. Use the billing group to bill all contracts for a customer or grant funding source. When the customer or grant is part of a multi-funded contract, a single funding source can be billed on a contract. When a match is required on a federal grant, the grant and the associated match funds must be assigned the same billing group.

Specify revenue recognition parameters. This is independent of the Generate Invoices action. The first set of funding sources with the same funding group are processed, then the next funding group. Processing is based on priority, percentage, funded amount, and funding group. The match funds must be next in priority order so that they are processed and calculated correctly.

Project funding sources on a contract can include an allowance or retainage. An allowance can be an administrative fee or a discount. When invoices are generated or revenue is recognized, the total amount of the expense lines are multiplied by the percent on the project funding source allowance. The allowance is the last line on the invoice or revenue. If the allowance is a fee, then the total invoice or revenue amount is increased. If the allowance is a discount, then the total invoice or revenue amount is decreased.

If you use the front end split functionality, then the funding split is performed before invoices are generated. See Front End Splits.

Retainage

You can use Retainage to hold a percentage of the project invoice until the project is complete. A maximum can be specified or a specific expense group can be specified as eligible or ineligible for the retainage. Retention is calculated on the gross amount that is billed before sales tax. Retention is held only on the contract amount that is billed, not on the sales tax. The retainage amount for the invoice is designated as the last line on the invoice and reduces the retained amount from the invoice amount. The retainage is held until the majority of the work is complete to ensure that the contractor or subcontractor satisfies its obligations. When the job is complete, run Generate Retainage Invoice to create the final invoice to collect the retained amounts. Retainage does not affect revenue recognition.

Pass through billing

Pass through billing is a requirement for the Professional Services industry for billing external customers.

Pass through is an override billing method that exists on posting projects and project billing override records. A Pass Through Finance Structure on the funding source setup for external project applies to any pass through transactions. Pass through billing has no mark up. Retainers, retention, fees, and allowances do not apply to pass through transactions. Pass through transactions are posted to the pass through accrual clearing account. They are not posted to billed unearned or earned unbilled accounts. Pass Through transactions do not apply to maximums and are totaled separately from project contract and project funding amounts that are used for maximums. Pass Through should not be used with internal funding sources.

There is no requirement that Pass Through must work with grant sponsored projects with internal funding sources. There is also no requirement for multiple funding sources that include an internal funding source. The cost reimbursement billing method is used for grant sponsored projects to pass along expenditures, with no markup, to both external grants or external customers. If you set up a billing override method on a project contract with internal funding, then an error is generated on the journalized invoices action. The error is for the funding type of Internal Fund.

If you are using account categories, then you can perform this setup:

• An account category for the Pass Through accrual entry.
• Account categories for posting level pass through costs. For example, airfare, hotel, mileage, miscellaneous travel.
• A summary account category for all pass through account categories. This simplifies setup because billing override can be set up using posting or summary account categories.

Invoicing and revenue recognition

Using invoicing and revenue recognition, you can partially bill a transaction when the contract or contract funding source maximum is reached. You can partially bill a transaction when the invoice maximum has been reached. The remaining portion of the transaction is captured. When the maximum is increased on the project contract or the contract funding source, the remainder of the cost transaction can be billed and revenue can be recognized.

When the Generate Invoice or Recognize Revenue actions are run, partial transactions are included. Additional transactions are included based on the transaction date. When fees are associated with a contract and the maximum is reached, an alert icon is displayed on the invoice detail line. The alert indicates which expenses reached the maximum amount for the fees. If the total expense can be taken but not all of the fees, then you have two options for distributing the fees. You can remove the expense until all of the fees can be taken or the partial fees can be invoiced as is. When an invoice is created or revenue is recognized with a partial transaction, a new tab is displayed on the contract. All transactions that have not been invoiced in full are displayed on the Partially Billed tab. All transactions that have not been fully recognized for revenue are displayed on the Partially Recognized tab.

Contracts can be set up to defer and hold the remainder for transactions where the funding sources are not billed or recognized at 100%. When defer and hold is enabled, partially billed or recognized transactions are calculated and put on hold. The remainder must be removed from hold so that it is invoiced or recognized.

These steps show a flow of how and when partial transactions are calculated:

1. This list shows some reasons why a 100% funding source may not exist:
   • A funding source was not defined for 100%.
   • A funding source was defined for 100%, but it is currently inactive or the date range is not within the Funding Source Date parameter.
   • The Generate Invoices action or the Recognize Revenue action was run for a single funding source that is not defined for 100%.
2. All applicable limits are calculated:
   • Run-time invoice maximum parameter
   • Remaining contract balance
   • Remaining funding source balance
   • Project billing maximum, if applicable
   • Maximum fees, if applicable.

     Outstanding balances and retainers that are to be applied are considered in these calculations.

3. Each incoming expense transaction is read and an invoice or revenue amount is calculated. All billing methods, for example, markups and rate tables, are considered in the calculation. The to be billed amount is generated. In addition, any applicable fees are calculated as separate, potential line items.
4. If a 100% funding source does not exist, then the calculated amount from step 3 is multiplied by the percentage of each valid funding source. If any calculation result exceeds the remaining balance of the funding source, then the entire expense transaction is skipped for all funding sources. This also applies if any calculation results in an amount that exceeds the maximum fees,
5. All transactions and associated fee lines that were not skipped in step 4 are processed for each valid funding source. The calculated amount from step 4 is compared to all applicable limits and maximums and is reduced, if necessary. If the amount is reduced to zero, then the transaction is skipped for the funding source, otherwise, an invoice line is created.
6. After funding sources are processed, a partial transaction is created for any remaining amounts that are not invoiced or recognized in these situations:
   • A funding limit is reached.
   • Funding is less than 100% for the funding source and defer and hold is enabled on the contract.
   Note: The remaining balances are continuously updated as each invoice line is created. Therefore, the sequence of incoming transactions determines which ones end up on an invoice if limits are an issue. For example, an early large expense can put the invoice over the amount of a maximum limit and cause smaller expenses to be skipped. Expenses are processed in Transaction Date order, oldest to newest. If several transactions have the same date, then they are processed in the order that they were created. Expense transactions that are subject to the Pass Through billing method are ignored for all limit calculations.

Invoicing and revenue recognition can also be set up for approvals before they are journalized. Approvals go through Process Automation before journalizing the records when selected on the enterprise project structure. The same steps are taken for generating retainer invoices, retainer adjustments, invoices, and revenue recognition. There is an action to submit for approval. This action changes the approval status to submitted for approval. The status of the record remains in a created status. After the record has been submitted for approval, the approver can approve or reject the records. When approved, the record approval status is changed to approved. When rejected, a Comments window is displayed. The approver must specify an explanation for the rejection. This explanation is displayed in the body of the email that is sent for the record. Rejecting a record changes the approval status to rejected. If one record is rejected, then the group is rejected. The record can be deleted or corrected and then resubmitted for approval. After the records are approved,then the action to journalize can be run. All records in the run group must be approved before journalizing.

The Budget Remaining field on the Main tab is a derived field. The calculation is Project Contract Budget Amount - Total Billed Amount - Total Retained Amount.

All contract totals are included on the Totals tab. The totals are displayed for draft and final amounts.

See the Process Automation Services Reference Guide for Financials and Supply Management for information about the approval flow setup.