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Oracle U.S. Federal Financials User Guide
Release 12.1
Part Number E13551-04
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Prompt Payment

Overview

The Prompt Payment Act is a set of regulations governing the payment practices of federal agencies. The Prompt Payment Act is documented in the Office of Management and Budget (OMB) Final Rule 5 CFR 1315: Prompt Payment; formerly OMB Circular A-125.

Federal Requirements

Payment of Commercial Obligations

To comply with these requirements, Oracle U.S. Federal Financials provides these features:

Payment of Interest Penalties

Agencies must pay valid interest penalties on late payments automatically from funds budgeted and allocated for the program for which the late payment occurred.

To comply with this requirement, Oracle Payables provides the Payables Automatic Interest process.

Reporting Requirements

To comply with this requirement, Payables provides these features:

Related Topics

Automatic Interest,Oracle Payables User Guide

U.S. Federal Payables Processing Cycle Diagram

This diagram shows the U.S. Federal Payables Processing Cycle as described in the U.S. Federal Payables Processing Cycle Diagram Description table.

U.S. Federal Payables Processing Cycle Diagram

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U.S. Federal Payables Processing Cycle Diagram Description

The following table describes the U.S. Federal Payables Processing Cycle diagram.

U.S. Federal Payables Processing Cycle Diagram Description
Feature Description Status
Payables Setup Agency performs Payables system setup. Agency activity
U.S. Federal Setup Agency performs setup for Oracle U.S. Federal Payables. Agency activity
Enter Invoices Agency enters and approves invoices in Payables. Agency can enter reason codes. Agency activity
Due Date Calculation Agency runs Due Date Calculation process to adjust payment due dates. Prompt Payment Due Date Report prints automatically. Described in this chapter
Economically Beneficial Discount Agency creates payment process requests. Economically beneficial discounts are taken automatically only when advantageous to agency. Described in this chapter
Verify Payments Agency verifies preliminary payment register of invoices to be paid. Agency activity
Format Payments Agency creates payment file for Treasury. Disbursement in transit can be used, if applicable. Agency activity
Update Reason Codes Agency updates Assign Reason Codes window with interest and discount lost reason codes if interest was paid or discounts were lost. Described in this chapter
Prompt Payment Reports Agency prints Prompt Payment Statistical Report to analyze payment statistics. Agency activity
Payments without Reason Codes Report Agency can print the Payments without Reason Codes Report to reconcile the Prompt Payment Statistical Report. Agency activity
Treasury Payment Agency receives Treasury information regarding payment accomplished dates. External or system activity
Treasury Confirmation and Reconciliation Agency confirms Treasury payments using Treasury Confirmation and Reconciliation window. Agency activity
Posting to General Ledger Agency runs the Transfer Journal Entries to General Ledger program from the subledger responsibilities for the entries that passed funds reservation Agency activity

Due Date Calculation Process

In Payables, the payment due date of an invoice normally defaults to the date set up as the Terms Date Basis, usually the Invoice Received Date. U.S. Federal Payables provides the Due Date Calculation process to calculate payment due dates according to the terms of the Prompt Payment Act.

Process

To run the Due Date Calculation process:

  1. After invoices are entered and approved in Payables, but before payment process requests are created, you can initiate the Due Date Calculation process.

  2. The Due Date Calculation process compares the Terms Date Basis with the Goods/Services Acceptance Date on each invoice. If the Goods/Services Acceptance Date is later than the Invoice Received date, the payment due date is changed to reflect the Goods/Services Acceptance Date. The payment period begins with the date selected.

    The Due Date Calculation Process can also compare the Goods/Services Acceptance Date to the Constructive Acceptance Date. Invoice returns can also affect the payment schedule.

    If payment due dates fall on nonworking dates or holidays, the Due Date Calculation process schedules the payment on the following business day. This is in compliance with the Prompt Payment Act, which states that agencies do not incur late payment interest penalties.

Example: Due Date Adjustment

This is an example of a payment due date of an invoice that is changed based on a later Goods/Services Acceptance Date.

An invoice is received with this information:

The original payment due date is May 11, 2002 because Payables uses the Invoice Received Date as the Terms Date Basis.

The Due Date Calculation process changes the due date to May 14, 2002 because the Goods/Services Acceptance Date is later than the Invoice Received Date.

Note: In this example, the Payables Terms Date Basis defaults to the Invoice Received Date. This default date must be specified in Payables.

Example: No Due Date Adjustment

This is an example of a payment due date that is not changed because the Invoice Received Date is later than the Goods/Services Acceptance Date.

An invoice is received with this information:

The original payment due date is May 14, 2002.

The Due Date Calculation process leaves the due date as May 14, 2002, because the Invoice Received Date is later than the Goods/Services Acceptance Date.

Example: Constructive Acceptance

This is an example of a payment due date of an invoice that is changed because the Constructive Acceptance Date is later than the Invoice Received Date.

An invoice is received with this information:

The original payment due date is December 14, 2002 because Payables uses the Invoice Received Date as the Terms Date Basis.

The agency has a Constructive Acceptance Date that is seven days after receipt of the goods. Actual acceptance of the goods did not occur until November 20, 2002, 10 days after receipt of the goods. The Due Date Calculation process changes the due date for the invoice to December 17, 30 days after the Constructive Acceptance Date.

Example: Invoice Returns

This is an example of a payment due date that is changed because the invoice was not returned within the allotted time.

An invoice is received with this information.

The original payment due date is December 30, 2002, 30 days after the new invoice was received.

The Due Date Calculation process changes the due date to December 27, 2002, because the Invoice Return Days are seven days, but the agency took 10 days to return the original invoice. The three extra days are subtracted from the payment terms.

Economically Beneficial Discount Process

Overview

An economically beneficial discount is a vendor discount that, if taken, lets an agency realize a greater return by paying early than by keeping its money invested until a later payment due date.

Payables lets you take supplier discounts for early payment at your discretion, as long as the discount date has not yet passed. However, the Prompt Payment Act requires federal agencies to take all economically beneficial discounts. Oracle U.S. Federal Financials complies with this requirement by providing the Economically Beneficial Discount process.

To run the Economically Beneficial Discount process:

  1. When payment process requests are created , the Economically Beneficial Discount process runs automatically during the selection of invoices.

  2. For each applicable invoice, the savings that would be realized by taking a discount on that date are converted into an effective annual discount rate using this formula:

    Effective Annual Discount Rate Formula

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    The effective annual discount rate formula is:

    The discount percentage divided by 100 minus the discount is multiplied by the days in the year divided by the total days in the payment period minus the days in the discount period.

  3. The rate is compared to the current value of funds rate entered in the Define Fund Rates window. If the effective annual discount rate is greater than the current value of funds rate, the discount is economically beneficial.

  4. Discounts are taken unless they are not economically beneficial or the discount date has passed. If the discount is not economically beneficial, the payment is eliminated from the payment process request, and it is processed again the next time invoices are selected for payment. If the discount date has passed, the payment is automatically added to the Assign Reason Codes window for a discount lost reason code to be assigned.

Example: Vendor Discount

This is an example when it is economically beneficial to take a vendor discount for early payment.

On an invoice dated April 15, a supplier offers a 2% discount if payment is made within 10 days. Otherwise, the payment is due within 30 days.

On April 25, the current value of funds rate is 9%. The Economically Beneficial Discount process performs this calculation to determine the effective annual discount rate the vendor is offering:

Effective Annual Discount Rate Calculation

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The effective annual discount rate calculation is 2% multiplied by 100% minus 2% multiplied by 360 divided by 30 minus 10 minus 0 which equals 0.367 or 36.7%.

Since this rate is greater than the current value of funds rate, the payment is processed and the discount taken.

Example: Due Date Adjustment with Discount

This is an example of changing the payment due date of an invoice based on a later Goods/Services Acceptance Date, and a vendor discount is offered.

An invoice is received with this information:

The original payment due date for this example is May 11, 2002.

The Due Date Calculation process changes the due date to May 14, 2002, because the Goods/Services Acceptance Date is later than the Invoice Received Date. The discount date remains April 21.

During the creation of payment process requests on April 21, the Economically Beneficial Discount process determines that the discount date has not yet passed, and compares the discount rate to the current value of funds rate to determine if taking the discount is economically beneficial.

Note: The Economically Beneficial Discount process is not utilized by the manual payments or quick payments. All payments subject to the Prompt Payment Act must be made by scheduling payment process requests.

Reason Code Process

Reason codes provide reasons for invoices with interest paid or discounts lost.

Payables enables users to enter reason codes for invoices for which interest was paid, a discount was lost, an invoice was cancelled or a credit memo was created. Records are inserted into this window automatically for invoices for which interest was paid or a discount was lost when the payment process request completes. Payables loads these invoices automatically when the payment process requests is confirmed. The reason codes for these invoices can then be entered individually or by a payment process request.

To run the Reason Code process:

  1. Enter an invoice if interest is paid or a discount is lost.

  2. Optionally, enter the unpaid invoice and assign a reason code in the Assign Reason Codes window.

    Note: If you enter the invoice in Step 2, the record is updated with the payment process request information during the payment request processing and retains the original reason code.

  3. Process the payment.

    Note: When payment process requests are created, all invoices with interest over $1.00 and invoices with discounts lost automatically populate the Assign Reason Codes window.

  4. Assign reason codes in the Assign Reason Codes window.

Note: Reason codes are not assigned for manual payments.

Related Topics

U.S. Federal Payables Processing Cycle Diagram table

Prompt Payment Process

Current Value of Funds Setup,Oracle U.S. Federal Financials Implementation Guide

Payment Terms Types Setup,Oracle U.S. Federal Financials Implementation Guide

Holiday and Non-Working Dates Setup,Oracle U.S. Federal Financials Implementation Guide

Prompt Payment Procedures.

Prompt Payment Report Procedures.

Invoice Validation, Oracle Payables User Guide.

Paying Invoices in payment process requests, Oracle Payables User Guide.

Setting Up Payables for Automatic Interest, Oracle Payables User Guide.

Federal Seed Data Setup,Oracle U.S. Federal Financials Implementation Guide