This chapter covers the following topics:
You can set up subsidies and associate them to an asset. A subsidy is an amount provided by a third party to a lessor to increase the lessor's margin on a deal. Subsidies provided on a lease between a lessor and a third party either supplement the lessor's income or adjust the rate charged to the lessee.
In Lease and Finance Management, subsidies are selected at the asset level during the contract or quote authoring process. Before subsidies can be selected, they must be created and defined.
Subsidy formulas in Lease and Finance Management can be modified. Lease and Finance Management recognizes the following two main subsidy types:
Discount
Rate
A discount is an amount provided to a lessor by a third party vendor that reduces the acquisition costs paid by lessor for leased equipment. These direct discounts to the lessor may or may not be disclosed to the lessee.
A rate subsidy is an adjustment on the borrowing interest rate paid by a lessee to a lessor over time. Vendors and manufacturers may offer subsidies to a lessor in exchange for a reduction in the interest rate paid by customers for the lease of equipment. Rate subsides are often billed to the third party by the lessor and amortized as income over the duration of the contract.
Subsidy Benefits In Lease and Finance Management
Use of subsides in Lease and Finance Management provides lessors the following benefits:
Attracts business by collecting subsidies from partners to reduce interest rates on leases and loans
Accepting subsides induces business prospects to lease rather than purchase
Allows application of subsides to specific internal organizations, industries, equipment items, or credit qualities
Allows configuration of calculations and accounting for subsidies
Allows vendors and manufacturers to obscure equipment price discounts from the market to lessen negative impact on industry prices
The following table describes the business process flow in Lease and Finance Management for subsidies.
| Step | Action | Description |
|---|---|---|
| 1 | Set Up Subsidies | Creates and define new subsidies or maintain previously-defined subsidies |
| 2 | Set Up Subsidy Criterion | Define subsidy criteria to limit and restrict the use of subsidies to specific deals. |
| 3 | Select Subsidies on Lease Quotes or Contracts | Subsidies are associated to a lease quote or contract at the asset line level. Subsidy details are entered. |
| 4 | Generate Subsidy Adjusted Yields | Lease and Finance Management calculates total subsidy amounts for all asset lines in a quote or contract prior to stream generation. |
| 5 | Adjust Fundable Amounts | Fundable total is reduced for vendor discounts. |
| 6 | Generate Subsidy Accrual Streams | Subsidy accrual streams are generated by Lease and Finance Management |
| 7 | Maintain Subsidy Accounting Classifications | Subsidy is classified by type for accounting purposes. |
| 8 | Bill Subsidy to Third Parties | Lease and Finance Management creates a Receivables invoice to any third parties to bill a subsidy due from lessor. |
| 9 | Book Assets at Adjusted Book Value | Lease and Finance Management transfers assets at an adjusted cost. |
| 10 | Process Subsidy on Termination | In the case of early termination of an asset, associated subsidies are either refunded to the provider or the subsidy is accelerated so that total subsidy income is accounted for before termination. |
| 11 | Process Subsidy During Contract Revision | If a contract is revised, Lease and Finance Management copies back any modifications or additions in subsidies to the original contract. |
This section includes the following topics:
Subsidy Setup
Configurable Subsidy Accounting
Subsidies at the Asset Level
Calculating Subsidy Amounts
Including Subsidies in the Yield Calculation
Collecting Subsidies
Viewing Subsidies
Before subsidies can be associated to an asset in contract or quote authoring, they must be created and defined. To set up subsides, see Set Up Subsidies, Lease and Finance Management Implementation Guide.
This section includes the following topics:
Configurable Accounting
Early Termination of Subsidy
After you select the subsidy to associate to an asset, Lease and Finance Management generates the appropriate accounting for that subsidy during booking. For discount subsidies, Lease and Finance Management transfers assets to Oracle Assets at the adjusted book cost for the discount amount.
Set up the accounting templates and define streams in your financial product to account for discount and rate subsidies.
Set up discount subsidies to transfer assets to Oracle Assets at the adjusted book cost at the discount amount.
When setting up rate subsidies, Lease and Finance Management amortizes the revenue stream for accrual accounting. When the lessor generates the accrual stream, Lease and Finance Management maintains reference to the subsidy accrual stream type so accrual amounts can be applied to separate accounts.
Once the product and stream types have been set up, you select the subsidy to be associated with the asset on the contract and Lease and Finance Management generates the appropriate accounting.
For information on streams, see Define Streams and Pricing, Oracle Lease and Finance Management Implementation Guide.
For information on accounting templates, see Define Lease Accounting Templates, Oracle Lease and Finance Management Implementation Guide.
When you terminate an asset with subsidies before contract expiration, Lease and Finance Management does not include the subsidy amount in termination quotes. Lease and Finance Management determines if the subsidy must be paid back to the provider based on the subsidy setup for recourse.
If you set up a subsidy so the provider has recourse, you can define the refund basis and a formula to calculate the refund amount to be paid back to the subsidy provider.
If a subsidy does not have to be repaid, Lease and Finance Management accelerates the recognition of any outstanding subsidy income at the point of termination.
Subsidies are associated to individual assets when authoring lease quotes or contracts. Lease and Finance Management provides lessors the flexibility to associate subsidies to all the assets on a lease contract or quote, or to associate them to individual assets.
Lessors select one or more subsidies for each asset from the list of applicable subsidies and then define the subsidy vendor. You can define what subsidies are applicable when you set up subsidy criterion. During contract activation, Lease and Finance Management booking validations check whether a subsidy is valid for the selected contract and customer.
To select subsidies when authoring a lease contract, see Selecting Subsidies.
To add subsidies when authoring a lease quote, see Add Subsidies to a Quote.
Lessors can define the basis on which the subsidy amount is calculated by either specifying a fixed amount or by calculating the amount based on a formula, a percent of the asset cost, or rate points. You can also set limits based on the maximum financed amount or the maximum subsidy amount.
Because changes to contract assets and values may change the subsidy amount, Lease and Finance Management automatically recalculates the subsidy amounts each time you update the Asset Subsidies page.
For subsidies taken as equipment discounts, Lease and Finance Management calculates and displays the adjusted asset cost while maintaining the original equipment cost for the asset. The total contract subsidy is displayed after being applied to each asset.
During an asset split, or any process that employs the asset split feature, the subsidy stream is split so each asset maintains the same proportion of subsidy income. Subsidies are also recalculated during book revisions.
You can override the calculated subsidy amount by entering a subsidy amount during asset creation in the original bookings or rebooking revisions. If the entered amount is different than the calculated amount, an warning message will be generated to inform you of the difference.
The yield or payment calculation includes the subsidy in the yield. Both subsidized and unsubsidized yields are displayed. The subsidized yield can be used to target restructure and renewal quotes.
Lessors have the following two options for collecting subsides from the vendor:
Reduce funding for vendor discounts
Bill third party for subsidies
Reduce Funding for Vendor Discounts
You can reduce the funding amount payable to the vendor by the amount of the subsidy. Lease and Finance Management generates payable invoices displaying the subsidy amount by stream type to manage subsidy performance and accounting.
For information on funding, see Funding, Chapter 13.
Bill Third Party for Subsidies
You can bill any third party for the amount of the subsidy. At booking, Lease and Finance Management generates a receivable invoice to bill the subsidy providers. Each subsidy is maintained as a separate line on the receivable notice with reference to the stream type to manage subsidy performance and accounting.
Selecting Subsidies
The following procedure shows how to select subsidies at the asset level when authoring a contract.
Must have created a contract with an asset.
Must have created a subsidy
The third party must be set up and associated to the contract.
Perform the following steps in the Assets page of the Contract subtab:
Once an asset is created, click Subsidies in the Properties region of the Assets page.
The Asset Subsidies page appears.
Select the subsidy and the party.
If the selected subsidy amount needs to the changed for this contract, you may enter a new amount in the Override Amount field.
Optionally, to add payment terms for refunds, click Party Refund Details.
The Create Subsidy Refund page appears.
Enter payment terms to disburse subsidy refunds.
Click Create.
If subsidies are set up to be viewable, customers and vendors view the Subsidized Cost of the Asset in Customer Self-Service and Vendor Self-Service. If the subsidies are not viewable, then Lease Center users cannot see the subsidies, but can see the unsubsidized cost.
Vendors sometimes create marketing programs, which provide subsidies for their partners. The partner may be required to monitor subsidy usage so that it does not exceed the authorized program budget. Subsidy Pools are used to manage, control, and account for the use of subsides. They help ensure the lessor does not exceed their authorized budget.
Lease and Finance Management enables you to:
Define subsidy pool parameters (such as timeframes and budget amounts).
Manage a subsidy pool by reporting subsidy usage and the subsidy pool balance, and then modifying the subsidy pool as necessary.
Control the use of subsidies in quotes and contracts.
Approve subsidy pools before downstream transactions are permitted.
In Lease and Finance Management, there are two types of subsidy pools:
Budget Pools – These pools are for tracking and controlling subsidy usage in the context of a budget and timeframe. When subsidies are associated to budget pools, the subsidy’s usage will be limited to the budget amount and timeframe of the respective budget pool. When a subsidy is used in a transaction (e.g., a quote or contract), the system checks that the transaction falls within the pool’s effective dates, and that the transaction subsidy amount is less than the remaining pool balance.
Reporting Pools – These pools are for monitoring purposes only. Although they serve as parents to other pools (either budget or reporting) in a parent/child relationship, they do not control or limit subsidy usage. In addition, although you can associate a budget pool or another reporting pool with a reporting pool, subsidies cannot be directly associated with a reporting pool.
The following table describes the subsidy pool business process flow in Lease and Finance Management.
| Action | Description |
|---|---|
| 1. Create a Budget Subsidy Pool | Create and define a budget subsidy pool. Enter header information and budget line items. |
| 2. Associate Subsidies to a Subsidy Pool | Subsidies can be associated to subsidy pools. |
| 3. Approve and Activate Subsidy Pools | Once created, subsidy pools can be activated or rejected through the approval process. |
| 4. Create Subsidy Pool Transactions | Specific quote, lease application, and contract events generate subsidy pool transactions. |
| 5. View Subsidy Pools | Subsidy pool information can be viewed after a subsidy pool is created. |
| 6. Update Subsidy Pools | Existing subsidy pools can be updated. |
| 7. Create a Reporting Subsidy Pool | Reporting Pools can be created anytime. |
| 8. Create a Subsidy Pool Usage Report | Report usage and remaining pool balances |
Lease and Finance Management enables you to perform the following subsidy pool tasks:
Search for Subsidy Pools
Create Subsidy Pools
Update Subsidy Pools
View Subsidy Pool Details
Create and Update Subsidy Pool Budget Lines
Associate Subsidies to a Subsidy Pool
You can search for subsidy pools in the Subsidy Pool Search page by selecting the Pool Type (Budget or Reporting) and entering one other parameter. The other parameters are: Name, Currency, Status, and Effective Dates.
You can search for subsidy pools across operating units provided the OKL: Subsidy Pool Global Access profile option is set to Yes.
Subsidy pools are created from the Create Subsidy Pool page. From the list of values, select the Pool Type (Budget or Reporting) you want to create and click Go. In the Create Subsidy Pool page, enter the subsidy pool parameters described in the table below.
The following table describes subsidy pool parameters.
| Field | Description |
|---|---|
| Short Description | Short description of the subsidy pool. |
| Description | Long description of the subsidy pool. |
| Parent Pool | Name of the parent pool, for which other reporting or budget pools may be children. |
| Type | Type of subsidy pool: Budget or Reporting. |
| Status | Status of the subsidy pool: New, Active, Pending (Approval), Approved, Rejected, Cancelled, or Expired. |
| Currency | Pool currency (e.g., US Dollars, Euros). |
| Currency Conversion Type | Currency Conversion Type (i.e., Corporate or Spot). This is the basis for converting the transaction (quote or contract) currency to the subsidy pool currency. |
| Reporting Pool Limit | This is a soft budget that applies only to a reporting pool. It is not used to control any transactions or for calculating remaining balances. It is merely a reference for a high level evaluation of aggregate subsidy/subsidy pool usage. |
| Budget | A budget is required for every Budget Subsidy Pool. It is used to limit the aggregate amount of subsidies that may be used over a given time period. |
| Remaining Balance | The remaining balance is calculated as the budget less all committed transactions (approved quotes and booked contracts). The budget is the sum of all approved Budget Additions and Reductions. |
| Effective From Date | You can create subsidy pools with initial effective dates in the future. |
When the subsidy pool parameters are entered you have the following three options:
Cancel your inputs – Click Cancel to erase your inputs and go to the Subsidy Pool Search page.
Save and Add Details – Click Save and Add Details to create the subsidy pool, and go to the General Tab, where you can add more information about the pool.
Apply – Click Apply to create the subsidy pool and go to the Subsidy Pool Search page, where you can submit the pool for approval or cancel it.
Subsidy pools are updated from the Subsidy Pool Details page. To access the Subsidy Pool Details page, click the Subsidy Pool Name. From the General or Budget Lines subtabs, click the Update icon to access the updatable parameters.
The following rules apply to updating subsidy pools:
Reporting Pool parameters can be updated at any time.
All Budget Pool parameters can be updated when they have a status of New.
After a budget pool is submitted for approval, only the following fields can be updated: Parent Pool Name, Short and Long Descriptions, and the Effective To Date.
New budget lines can be added to add or reduce the budget balance.
New subsidies can be associated per the association rules (see end of this chapter).
After subsidy pools are updated, the updates can be applied and the pools can be submitted for Approval. The following rules apply to subsidy pool Approval:
Reporting subsidy pools do not have a status, and do not require approval.
Budget subsidy pools do have a status, and require approval before they are activated.
Budget Pools are created with a status of New.
To be submitted for Approval, a subsidy pool needs a budget line item and an associated subsidy.
After being submitted for approval, the Budget Pool may be activated or rejected
A Budget Pool can be updated both before and after activation.
A Budget Pool with the status of Pending Approval cannot be updated.
You can view subsidy pool details by clicking the pool name in the Subsidy Pools page. Subsidy pool details include the following:
For Budget Pools:
General Information – displays pool type, descriptions, currency, currency conversion type, parent pool, budget and status.
Budget Lines – displays budget amounts and details, by line item.
Subsidies – displays information for all subsidies associated to the respective pool.
For Reporting Pools:
General Information – displays pool type, descriptions, currency, currency conversion type, parent pool, and pool limit.
Budget Lines – not applicable.
Subsidies – not applicable.
To access, create, or update subsidy pool budget lines, click the respective Budget Subsidy Pool from the Subsidy Pool details page. Click Budget Lines to view budget line details. Click Update to update or add new budget lines.
If you are creating the initial budget line item, input the budget amount, as well as a respective note about the line item. The initial budget is submitted for approval only when the subsidy pool is submitted for approval.
If you are increasing or decreasing the budget, click Add Another Row and enter new budget line details. Apply or Cancel your changes. Clicking Apply creates a line item with the status of New. To submit the line item for approval, click Submit for Approval icon from the Budget page. To display and access the line item Submit for Approval icon, click the update button on the Budget Lines page.
The following rules apply to updating budget lines
Only budget subsidy pools have budget lines.
Reporting pools limits are defined on the General page, not on the Budget Lines page.
You cannot update a subsidy pool budget line if the budget line status is either Active or Pending Approval.
Subsidies are associated to Budget Subsidy Pools in the Subsidy page. In the Update Subsidy page, use the Subsidy Pool list of values to select the subsidy pool to which the subsidy is to be associated. The Subsidy Pool Status and Effective Dates are displayed.
The following rules apply to associating a subsidy to a subsidy pool:
Subsidies can only be associated to Budget Pools, not Reporting Pools.
You can associate more than one subsidy to a pool.
You can associate subsidies defined in multiple operating units to a single Budget Subsidy Pool.
Once a subsidy is associated to a pool, it cannot be disassociated.
Either the subsidy start date or end date must fall within the subsidy pool start date or end date
Lease and Finance Management determines if the subsidy currency is the same as the subsidy pool currency and, if not, verifies that the subsidy currency conversion factor is defined. You cannot delete a subsidy pool after it has been activated. Approval is not required to associate subsidies when a subsidy pool is Active. When you associate a subsidy to a subsidy pool, the status automatically becomes Active.