Calculating Advances - Bonus/Commission

Before you start

A Bonus/Commission agreement must be specified with either a fixed or a dynamic b/c advance method. The prerequisites for bonus/commissions are described in Managing Bonus and Commission.

Follow these steps

1. Settings for B/C Advance Method

   Settings for the advance method are specified for each b/c agreement in 'Bonus/Comm Agreement. Open' (OIS412).

   • Advance Method

     Advances are calculated by either a fixed or dynamic advance method. These methods are explained in the sections Calculating Fixed Advance and Calculating Dynamic Advance.

   • Advance Percentage

     The advance percentage specifies whether the entire or part of a b/c payment is made in advance. This guards against making too large payments in advance.

   • Advance Frequency

     The advance frequency specifies the interval at which advance payments are calculated for b/c agreements, such as every other period or every third period. The period type specified in the b/c agreement indicates the period range, such as a week or a month.

2. Calculating Fixed Advance

   A fixed advance is recommended for agreements providing immediate payment of bonus/commission without any graduated percentages for generating values.

   Fixed percentages are specified per recipient in 'Bonus/Comm Agreement. Enter Reservations' (OIS414). The advance is calculated by multiplying the paying amount for the period by the fixed percentage. See 'B/C Agreement. Change Recipient Status' (OIS411), which is started from 'Bonus/Comm Agreement. Change Status' (OIS410).

3. Calculating Dynamic Advance

   When a dynamic advance is calculated, the percentage b/c is retrieved from 'Bonus/Comm Agreement. Enter Rates' (OIS413). The percentage depends on the forecast for the recipient's generating value.

   The forecast is calculated from the accrued generating value and the forecast factor for the last date of the advance period or the current date within the period, if advances are created before the end of the period.

   The forecast factor is based on the time past and the remaining time in the agreement period. Any seasonal curve is taken into account. The current forecast factor is calculated and displayed in 'Bonus/Comm Agreement. Change Status' (OIS410).

   This table shows an example of a percentage table:

   Generating value net weight	Percentage B/C
   1000	2.00
   1500	5.00
   2000	7.00

   For a dynamic advance to be credited, the forecast must exceed the first limit for generating values in the percentage table. See program 'Bonus/Comm Agreement. Enter Rates' (OIS413).

   The dynamic advance method weighs in how the forecasted generating value develops during the agreement period. If the forecast shows a negative trend, no more advances are proposed. If it shows a positive trend, a higher percentage b/c is selected when the advance is calculated, provided that the table is set up this way.

   Description of the Dynamic Advance Method
   Forecasted generating value	According to the last date of the advance period or the current date within the period. See program 'Bonus/Comm Agreement. Change Status' (OIS410).
   Percentage	Retrieved from the percentage b/c scale according to the forecast for the generating value above. See program 'Bonus/Comm Agreement. Enter Rates' (OIS413).
   Paying amount	Retrieves total accrued paying amount up to the last date in the advance period or the current date within the period. See program 'B/C Agreement. Change Recipient Status' (OIS411).
   Subtotal 1	Paying amount * percentage
   Previous advance	See program 'Bonus/Comm Agreement. Change Status' (OIS410).
   Subtotal 2	Subtotal 1 - previous advance
   Advance percentage	According to b/c agreement. See program 'Bonus/Comm Agreement. Open' (OIS412).
   B/C advance	Calculated b/c can be changed manually in program 'Bonus/Comm Agreement. Open' (OIS412). if the agreement status is 20.

Description

The examples below describe:

• Example 1, Calculating Fixed Advances

  Assume an advance for periods 4 to 6 in a commission agreement and an advance frequency of 3. No advance percentage is specified, so the entire amount is credited. The recipient has a 5% fixed percentage specified in 'Bonus/Comm Agreement. Enter Reservations' (OIS414).

  For the previous interval (periods 1 to 3) the recipient was credited an advance of 280 x 5% = 14. However, with the fixed advance method, this does not affect the calculation for period interval 4-6.

  Period	1	2	3	4	5	6
  Paying amount	100	80	100	90	200	150

  The 5% fixed percentage is calculated from the paying amount for periods 4-6.

  Recipient's fixed percentage	5%
  Paying amount periods 4-6	440
  Advance percentage	0
  Advance commission credited (440 x 5%)	22

  Comments

  The fixed advance method does not take into account the percentage table for generating values. This method is best used for b/c agreements based on immediate payment which does not require reaching any limits and does not use any varying percentages depending on the generating value.

  Whenever the advances credited are too high, the recipient is debited on the final settlement.

• Example 2, Calculating Dynamic Advances

  Consider an advance for periods 4 to 6 out of 12 and an advance frequency of 3. No advance percentage is specified, so the entire amount is credited.

  The b/c agreement contains the scale below as specified in 'Bonus/Comm Agreement. Enter Rates' (OIS413) for the generating value in net weight.

  Generating value net weight	Percentage B/C
  100	2.00
  150	5.00
  200	7.00

  The following figures are invoiced and updated for the recipient:

  Period	1	2	3	4	5	6
  Paying amount	100	80	100	90	200	150	= 720
  Gen. amount net weight	10	8	7	19	27	15	= 86
  Seasonal curve	4%	8%	8%	10%	10%	6%

  The forecast factor (on 30 June) is 2,1867. This is calculated and specified in program 'Bonus/Comm Agreement. Change Status' (OIS410).

  	Description	Result
  1	Forecasted generating value (net weight) for agreement period	Total accrued generating value is 86, multiplied by the forecast factor 2.1867.	188.06
  2	Percentage for calculating b/c	Percentage b/c retrieved from the scale shows a forecast of 188.06 corresponding to a 5% bonus/commission.	5.00%
  3	Accrued paying amount	The recipient's current accrued paying amount is 720 when the advance is calculated.	720.00
  4	Bonus/ Commission	Calculated bonus/commission is 720 x 5% when advance is calculated.	36.00
  5	Previous advances	Accrued bonus/commission minus previous advances to recipient (280 x 2%).	-5.60
  6	Advance percentage	No advance percentage is specified for the b/c agreement, so the entire advance is credited.	0
  7	Advance period 4-6	Calculated bonus/commission 36.00 minus previous advances 5.60. The advance is credited with 30.40.	30.40

  Comments

  The generating value for the first three periods totaled 25. This led to a forecast of the agreement period (1-3) of 127.30 (with a forecast factor of 5.0922) at the time. The percentage rate for 127.30 is 2%.

  A clear positive trend occurred during periods 4 to 6. The 12-period forecast based on the first six periods is 188, as opposed to the 127.30 for the first three periods. A total net weight of 188 gives 5% bonus instead of 2%. This illustrates the important difference between the fixed and dynamic advance methods. With the dynamic method, any trends are included in the calculation of b/c advances.

  A negative trend may result in no further advances. Whenever too much is credited in advance, the recipient is debited in the final settlement.