Passthroughs

This chapter covers the following topics:

Overview

A passthrough is a portion of a payment received by a lessor from a lessee that is paid to a vendor. The payment that the lessor makes to the vendor is known as a passthrough.

Automatic passthroughs can be configured on a service or on a fee during the base period and/or the evergreen period and must always include the provision of a service to the lessee by the service vendor.

The figure below illustrates a passthrough configured on a service. The service vendor provides the lessor with photocopiers. The lessor leases the photocopiers to lessees, who are corporate customers. In this scenario, the lessor has a lease contract with the lessee, which includes the provision of maintenance service on a photocopier. Additionally, a service agreement exists between the service vendor and the lessor, such that the service vendor provides maintenance service on the customer's photocopier. Every month, the lessor bills the lessee $1,000 for the maintenance service provided by the service vendor on the photocopier. The customer pays the invoice and the lessor receives $1,000. Because a service agreement exists between the service vendor and the lessor, whereby the service vendor services the photocopier, the lessor, in turn, retains $20 as the processing fee for billing and collecting payment from the lessee and passes on the service portion of the receipt to the service vendor, which represents the passthrough amount of $980 (98%).

In some cases, the service vendor may indemnify the lessor against any loss incurred on the disposal of the asset. In these cases, the service vendor is entitled to all or a portion of the rent recovered during the evergreen period. This is also configured using passthrough functionality.

Example of a Passthrough Configured on a Service

the picture is described in the document text

Passthrough Business Process

The following table describes the passthrough business process in Leasing and Finance Management.

Step Action Description
1. Define passthroughs on contract fee, service, and/or asset lines:

  • Specify vendors who will receive passthroughs.

  • Specify passthrough percentages or amounts to be paid to vendors.

  • Specify the payout bases (billing date, due date, formula, full receipt, or partial receipt) of the passthroughs.

    Disbursement amounts based on a formula are applicable only during the evergreen period.

  • Specify processing fees, if applicable. A processing fee is an amount that a lessor retains for billing and collecting payment from the lessor.

Note: A processing fee must be greater than or equal to zero. No processing fee is charged to the vendor if the passthrough amount is negative.

 You can enable passthroughs to one or multiple vendors. Allocation of passthroughs to multiple vendors can be based on:

  • a fixed amount

  • a percentage


You can specify how frequently a passthrough is made to a vendor, based on a schedule or on the timing of the concurrent program processing dates.
For passthroughs on fees, you can retain passthrough processing fees based on:

  • a fixed amount

  • a percentage of one or more contract lines

  • a combination of fixed amount and a percentage of contract lines
2. The event on which the passthrough payout is based occurs:

  • billing

  • receipt

 For example, if the payout basis is billing and the passthrough disbursement basis is 10%, then 10% of the invoice amount is paid to the vendor. If the payout basis is receipt and the invoice amount is $100, the receipt amount is $50, and the passthrough disbursement basis is 10%, then 10% of the receipt amount is paid to the vendor.
3. Run the following Leasing and Finance Management processes:

  • Pay Invoices Creation of Auto-Disbursement

  • Pay Invoice Prepare for AP Transfer

  • Pay Invoices Transfer to AP Invoice Interface

 Running the processes enables the following actions:

  • creates passthrough transactions

  • prepares passthrough transactions for transfer to an Oracle Payables interface table

  • transfers passthrough transactions from Leasing and Finance Management to an Oracle Payables interface table
4. Change responsibility to Payables Manager and run the following process from Oracle Payables:

  • Payables Open Interface Import

 Running the process enables the importation of passthrough transactions into Oracle Payables.
5. View passthrough details. You can view the following passthrough details in the Lease Center:

  • passthroughs processed, by vendor

  • passthroughs processed on fees

  • passthrough parameters defined on contracts during the base term on fee and service lines

  • passthrough parameters defined on contracts during the evergreen term

  • multiple vendors for a passthrough fee line or service line

  • payment schedules on a fee


You can view the following passthrough details in Vendor Self-Service:

  • passthrough processing rules pertaining to assets, fees, and services in the base and evergreen periods

  • vendor passthrough information on services, fees, and rent

  • passthrough parameters, including passthrough start date, frequency, basis (billed or received) and payment amounts

  • for the base term, passthrough parameters, transaction type, and disbursement amount for fees and services

  • for the evergreen term, passthrough parameters, transaction type, and disbursement amount for assets (rent), fees, and services.

Setup

Before you can use passthroughs in Leasing and Finance Management, you must perform the following setup procedures:

Set Up Stream Types

Leasing and Finance Management enables you to set up stream types to meet your accounting requirements. When creating a stream type, you must provide a stream type name and a stream type purpose. Appropriate values for the stream type attributes can then be selected. You can create as many stream types as you need. Leasing and Finance Management also provides seeded stream types. The seeded stream types that apply to passthroughs are as follows:

For information on setting up stream types, see Define Stream Types, Oracle Lease Management Implementation Guide.

For information on seeded stream types organized by purpose name, see Stream Purposes, Oracle Lease Management Implementation Guide.

Set Up Stream Generation Templates

Before Leasing and Finance Management can generate streams, you must define a stream generation template for processing fees using a seeded purpose type of Processing Fee. Only one stream type of purpose Processing Fee can be added to a template. Before using a stream generation template, the following setup tasks must be completed:

Note: When you author a contract and enable passthroughs at the contract or line level, Leasing and Finance Management verifies that the associated stream generation template includes the appropriate seeded purpose. If it does not, the system generates an error message and prevents you from authoring the contract.

For information on setting up stream generation templates, see Define Stream Generation Template, Oracle Lease Management Implementation Guide .

Set up Accounting Templates

Each accounting template defines the accounts and accounting entries that are generated for an accounting transaction. The accounting templates use various parameters, some of which are mandatory or significant.

To set up accounting templates, see Define Lease Accounting Templates, Oracle Lease Management Implementation Guide.

Set up Vendors

Before you can pay a passthrough to a vendor, you must set up vendors. For information on setting up vendors, see Add Parties to a Contract.

Functional Prerequisites

Before you can define and use passthroughs in Leasing and Finance Management, you must perform the following functional procedures:

For information on creating a contract service line, see Set Up Service Lines.

For information on creating a fee service line, see Fees, And Set Up Fee Lines.

For information on specifying parties on the contract and their roles, see Identify Parties on a Contract.

Passthrough Features

With respect to passthroughs, Leasing and Finance Management enables you to do the following:

Using Passthroughs

The following sections describe how passthroughs are used in Leasing and Finance Management:

Defining Passthrough Rules on a Program Agreement

To default passthrough rules from a program agreement to a contract, the passthrough rules must be defined on the contract template used to create the contract.

Level and Term Usage of Passthroughs

You can enable evergreen passthroughs at the following levels:

During the base term, you can define passthroughs on the following elements of a contract at the line level:

During the evergreen term, you can define passthroughs on the following elements of a contract at the line level. Rent can also be enabled at the contract level.

Specifying Passthrough Attributes

You can specify passthrough attributes to indicate when base and evergreen period passthroughs are made. During the base period, you can define passthroughs based on the following:

During the evergreen period, you can define passthroughs based on the invoice billing date or receipt date, but not on the due date.

The table below describes several significant passthrough attributes that you specify for the base term.

Passthrough Attributes for Base Term
Attributes Type Values
Payment Basis Required Scheduled–payment to the vendor is made as defined on a schedule
Processing Date–payment to the vendor is made on the processing date
Payment Start Date Conditionally Required–applicable if payment basis is defined as Scheduled Date–date from which the scheduled payments are made to the vendors.
Payment Frequency Conditionally Required–applicable if payment basis is defined as Scheduled Monthly, Quarterly, or Annual–payment date is calculated by applying the payment frequency to the payment start date
Remittance Days Conditionally Required–applicable if payment basis is defined as Processing Date Number of days–payment date is calculated by adding the remittance days to the date of payment processing
Disbursement Basis Required Fixed Amount–payment of a fixed amount is made to the vendor
Percentage–payment of a percentage of the payable funds is made to the vendor

Generating Accrual Streams During Contract Booking

When the contract is booked, accrual streams are generated for passthrough processing fees.

Calculating Passthroughs

Passthrough calculations are typically performed through an offline batch process. The following input parameters are usually entered before passthrough calculations commence:

You can specify the automatic calculation of passthroughs based on the following amounts:

During the base period, you can calculate passthroughs based on a percentage of service and/or fees. During the evergreen period, you can calculate passthroughs based on a percentage of service, fees, and/or rent.

Terminating Contracts

You can process passthroughs on a termination quote during the base period. Additionally, you can process passthroughs on terminated contracts during the evergreen period.

Rebooking Contracts

When you rebook a contract, the rebook transaction automatically adjusts the passthrough amount and enters the terms and conditions in the new contract. If a contract is rebooked, the following passthrough payment adjustments are created:

On rebook, when the vendor disbursement basis is amount, no passthrough adjustment is created for the vendor. However, if the vendor disbursement basis is percentage, then a proportional passthrough adjustment is created.

Passthrough Payout Basis is Due Date

The rebook process regenerates the billing streams with new payments and creates a billing adjustment transaction for the adjustment amount. The rebook process confirms that the passthrough payments have been made until the billing date and calculates the passthrough adjustment amount. Passthrough processing identifies the billing adjustment transaction and creates the passthrough payment for the adjustment.

Passthrough Payout Basis is Billing

The rebook process calculates the passthrough adjustment amount. Additionally, passthrough processing processes the passthrough payment based on the billing or credit memo resulting from the rebook.

Passthrough Payout Basis is Receipt

The rebook process calculates the passthrough adjustment amount. Additionally, passthrough processing processes the passthrough payment based on the credit memo resulting from the rebook.

Querying Passthroughs

As a lessor, you can query passthrough receipts and payment details in the Lease Center. Customers and vendors can view receipts and disbursement details in customer self-service and vendor self-service, respectively.

Viewing Passthrough Details

Lessors can view the following passthrough transactions in the Lease Center:

Vendors can view the following passthrough transactions through Vendor Self-Service in the Service Payment Details window and the Fee Payment Details window: