| Contract typesThe contract types or billing terms list the conditions and
agreements to invoice contracts to the customer. You can define the following types of contracts: - Fixed Price: A contract that is carried out for an
agreed fixed price. The price is agreed when the contract is signed. It is
often used when the lead-time of a contract is long and the value of the
contract is high.
- The default method of invoicing is installments.
- Delivery based invoices are sent when items are shipped or
when services are delivered. Delivery based invoices can be used as an
alternative to installment invoices.
- In case of installment payments, also called milestone
payments, stage payments or performance based payments, a part of the agreed
price is paid based on reaching certain milestones.
- Advance payment requests can also be used in combination
with installments and progress invoices. Advance payments requests can be made
for all contract types. The advance must be linked to one of the contract lines
and you can link an advance to an element or activity.
- Cost Reimbursement: A contract that is carried out based
on cost reimbursement and a profit percentage. The billing is done on a
periodic basis based on cost. However, sometimes not all costs can be billed. A
limit, ceiling or a not-to-exceed amount can be agreed upon with the customer.
In general ,direct costs, like material, labor, and so on
are billed directly to the customer. However there are certain
restrictions: Legal: Some cost may not be billed to the customer because of
legal regulations. For example in some countries it is not allowed to charge
several types of cost to the customer such as donations, entertainment cost or
cost for bad credit control. Due diligence: For example, inventory adjustments. If materials are
purchased for the contracts, and parts of the contract are canceled. And, the
materials need to be scrapped, the cost incurred can be charged to the
customer. Agreements: A customer can assign a certain percentage of the material
cost to scrap. If the cost of scrap is not more than the agreed level, these
costs can be charged to the customer as direct material cost. In case the cost
of scrap exceeds this level, the customer pays only the allowed
percentage.
- Time & Materials: This contract type is usually used for long term research
and development projects. It is a type of contract that is invoiced for the
material and the labor at an agreed sales rate. The sales rate can be a fixed
amount, a markup percentage or the cost incurred. Example: For labor cost, a
fixed amount could be determined dependent on the rate of the employee,
department or job category the employee belongs to. The rates and prices can be
contract specific. Also, for time and material contracts, a ceiling limit can
be applicable. The billing process of indirect cost is similar to
cost-reimbursement contracts.
| Installment | Cost
Plus | Unit Rate | Progress Invoice | Delivery
Based | Fixed Price | Yes | No | Yes | Yes | Yes | Cost
Reimbursement | No | Yes | Yes | No | No | Time
& Materials | No | Yes | Yes | No | No |
Invoicing methods Following are the invoicing methods for the above mentioned
contract types: Note You can initiate the invoicing process only if the status of
the contract, the contract line and, in case of delivery based invoicing, the
contract deliverables line is set to Active. | |