23 Define Revenue Management Configuration

This chapter contains the following:

Evaluating Revenue Policy: Points to Consider

Event-Based Revenue Management: How It Works

Revenue Contingencies: Explained

FAQs for Define Revenue Management Configuration

Evaluating Revenue Policy: Points to Consider

Use the Manage Revenue Policies page to specify revenue policies for each applicable business unit. Oracle Fusion Receivables uses the revenue policy definition to make automatic revenue recognition decisions for manually entered and imported transactions.

Receivables compares each transaction against the revenue policy, and assigns revenue contingencies to the transaction or transaction lines that deviate from the policy definitions.

There are these points to consider for each revenue policy definition:

Credit Classification
Refund Policy Threshold
Payment Terms Threshold

Credit Classification

Use credit classifications to identify your high risk, noncreditworthy customers. You can assign up to three levels of risk. Receivables compares these risk levels to the credit classification assigned to the customer profile.

When you enter or import a transaction for a customer with a credit classification that matches one of the credit classifications in the revenue policy, Receivables:

Assigns the Customer Creditworthiness contingency to the transaction.
Defers revenue on the entire transaction.
Recognizes revenue on the transaction only to the extent of payments received.

Refund Policy Threshold

Use the Refund Policy Threshold column to enter the standard refund period in days that you typically offer to your customers.

When you enter or import a transaction with a line that is associated with a contract, Receivables analyzes the contract details. If the contract offers a refund period that exceeds the refund policy, Receivables:

Assigns the Refund contingency to the transaction line.
Defers revenue on the transaction line.
Recognizes revenue on the transaction line only after the refund period on the transaction line expires.

Payment Terms Threshold

Use the Payment Terms Threshold column to enter the maximum time period in days before payment terms become extended.

When you enter or import a transaction with payment terms or an installment schedule that exceeds the payment terms policy, Receivables:

Assigns the Extended Payment Term contingency to the transaction.
Defers revenue on the entire transaction.
Recognizes revenue on the transaction only to the extent of payments received.

For example, you enter a payment terms threshold of 180 days on your revenue policy, and you later enter or import an invoice with payment terms that have four installments:

Net 60
Net 90
Net 120
Net 200

Receivables defers the entire revenue amount on the invoice because the last installment exceeds the 180-day threshold by 20 days.

Event-Based Revenue Management: How It Works

Oracle Fusion Receivables automates the timing of revenue recognition for both manually entered transactions and transactions imported via AutoInvoice. This automated revenue management process helps you to comply with the strict revenue recognition requirements mandated by US GAAP and International Accounting Standards.

The event-based revenue management process evaluates each transaction and decides whether to immediately recognize revenue, or temporarily defer revenue to an unearned revenue account based on the contingencies assigned to the transaction. Revenue is subsequently recognized according to the removal event assigned to each contingency.

Note

Even if you set up for automated revenue recognition, you can still manually adjust revenue on transactions. Once you manually adjust revenue, Receivables discontinues the automatic monitoring of contingencies.

Settings That Affect Event-Based Revenue Management

These settings affect event-based revenue management:

Require salesperson system option: You must enable the Require salesperson system option to use revenue recognition.
AR_INTERFACE_CONTS_ALL table: You can use the AR_INTERFACE_CONTS_ALL table to assign revenue contingency IDs to billing lines, before importing transactions via AutoInvoice or creating tranactions using the Invoice API.
Note

When importing parent and child transaction lines, AutoInvoice automatically copies any contingencies from the parent line to the child lines.
Revenue Contingencies: The revenue contingencies assigned to transactions, and their corresponding removal events, determine what revenue is deferred and for how long.
Revenue Policy: Your revenue policy may trigger the assignment of contingencies to transactions.
Revenue Contingency Assignment Rules: Your active revenue contingency assignment rules may trigger the assignment of contingencies to transactions.
Revenue Scheduling Rules: If a revenue scheduling rule is assigned to the transaction, then revenue is recognized according to the revenue scheduling rule details and rule start date.

How Event-Based Revenue Management Is Calculated

The event-based revenue management process for deferring and later recognizing revenue on transactions follows these steps:

Receivables evaluates a transaction either entered manually or imported via AutoInvoice for revenue recognition.
If one or more contingencies exist, Receivables defers the corresponding revenue to an unearned revenue account and records the reason for the deferral.
Receivables monitors the contingencies until an event occurs that can remove the contingency and trigger revenue recognition.
When a removal event occurs, Receivables recognizes the appropriate amount of unearned revenue on the transaction.

The revenue is recognized either according to the revenue scheduling rule or the last contingency removal date.

Revenue Contingencies: Explained

You can use predefined revenue contingencies to assign to your customer transactions. You can define your own contingencies based on the predefined contingencies, and you can define revenue contingency assignment rules to control which contingencies are assigned to which transactions.

Revenue Contingencies

This table describes the predefined revenue contingencies and their corresponding contingency removal events.

Contingency Name	Contingency Removal Event
Cancellation	Contingency expiration date or expiration period
Customer Creditworthiness	Receipt application
Delivery	Proof of Delivery
Doubtful Collectibility	Receipt application
Explicit Acceptance	Customer acceptance
Extended Payment Terms	Receipt application
Forfeitures	Contingency expiration date or expiration period
Installation	Customer acceptance
Pre-Billing Acceptance	Invoicing
Refund	Contingency expiration date or expiration period

FAQs for Define Revenue Management Configuration

What's a revenue contingency?

A revenue contingency is the terms and conditions in a sales contract or business agreement that prevents revenue from being immediately recognized, based on the revenue recognition requirements mandated by US GAAP and International Accounting Standards.

Typical contingencies that can delay revenue recognition include customer creditworthiness, nonstandard payment terms, and nonstandard refund policies.

When do I use a revenue policy with a contingency?

You can assign a contingency to a transaction based on the revenue policy of your enterprise.

You have these options:

Credit Classification: The contingency is assigned to the transaction if the applicable customer has a credit classification that matches one of the credit classifications defined in your revenue policy.
Payment Terms: The contingency is assigned to the transaction if its payment terms exceed the payment terms threshold of your revenue policy.
Refund: The contingency is assigned to the transaction if it includes a refund policy that exceeds the refund policy threshold of your revenue policy.

Select None if you do not want to consider any details of your revenue policy for the contingency.

When do I create revenue contingency assignment rules?

You must create revenue contingency assignment rules if you want to automatically assign contingencies to transactions. For each rule that you define, you specify one or more matching criteria. Whenever the rule criteria match, Oracle Fusion Receivables assigns the specified contingency to the applicable transaction lines.

There are two cases where you do not need to create revenue contingency assignment rules:

Revenue policy violations: Receivables automatically assigns the appropriate revenue contingencies to transactions whenever any revenue policy is violated.
Deferred revenue scheduling rules: Transactions assigned a deferred revenue scheduling rule have all revenue deferred until either the related contingency expires or you manually schedule revenue.