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24 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

Payment-Based Contingencies: Explained

Removal Events: 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.

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

Payment-Based Contingencies: Explained

With payment-based revenue contingencies, revenue recognition depends upon receipt application. Use payment-based contingencies for customers, or for certain transactions, where you want to recognize revenue only when you receive payment.

If a transaction or transaction line contains payment-based contingencies, these rules apply:

Oracle Fusion Receivables initially defers revenue on the sum of all line balances, excluding taxes, freight, and late charges
If the payment-based contingency is on one line only, then under either of these circumstances Receivables defers revenue for the relevant line only:
- Payment-based contingency was defaulted on all the lines of the transaction, and the contingency was expired manually on certain lines.
- Payment-based contingency was manually applied to one or more lines.
During AutoInvoice import, full or partial receipt application on an imported transaction can trigger automatic recognition of previously deferred revenue. In such cases, Receivables initiates the distribution of revenue in the amount of the applied receipt from an unearned revenue account to the appropriate earned revenue account.
When you apply a receipt to a transaction with payment-based contingencies, the total amount of revenue that is recognized can never exceed the original amount due on the transaction, less any applicable credit memo.
If you later need to reverse a receipt, then Receivables automatically moves the amount of the reversed receipt back to an unearned revenue account.

Payment-Based Contingencies

Payment-based revenue management occurs when deferred revenue exists on a transaction due to any of these revenue contingencies: Creditworthiness, Extended Payment Terms, Doubtful Collectibility.

Creditworthiness: You can assign a credit classification that indicates noncreditworthiness to a customer or site profile. You can also assign up to three such credit classifications to your revenue policy.
If Receivables cannot associate the customer on the transaction with any of these credit classifications, then the customer is presumed to be creditworthy. If a customer can be associated with one of these credit classifications, then Receivables assigns the Creditworthiness contingency to all transaction lines and defers the entire transaction amount.
Extended Payment Terms: You define the payment terms threshold on your revenue policy.
If the payment terms on a transaction exceeds the stated threshold, then Receivables assigns the Extended Payment Terms contingency to all transaction lines and defers the entire transaction amount.
Doubtful Collectibility: Collectibility of late charges is typically in doubt, and should not be considered earned revenue until payment is received.
Decisions about doubtful collectibility are typically made in feeder systems, before AutoInvoice import occurs.

Deferred revenue can exist on a transaction due to a combination of these contingencies , as well as time-based contingencies. In such cases, applied payments initiate revenue recognition only if time-based contingencies have expired.

The following types of receipt application have no impact on revenue recognition:

The receipt is a miscellaneous receipt. Only standard receipts have potential revenue recognition implications.
You apply a receipt against a transaction that had revenue manually deferred.
You apply a receipt against a transaction that had revenue deferred due to unexpired time-based contingencies.

In this case, Receivables keeps the revenue amount for the transaction or transaction line in the unearned revenue account, but marks the transaction as revenue that is pending recognition until after the contingency expires.

Removal Events: Explained

The event-based revenue management process in Oracle Fusion Receivables manages the recognition of revenue on transactions with revenue contingencies. If a transaction has one or more revenue contingencies, Receivables defers revenue to an unearned revenue account until the contingencies expire.

The extent of the revenue deferral, and the subsequent timing of revenue recognition, depends on the nature of the contingency:

Time-based contingencies must expire before the contingency can be removed and revenue recognized.
Payment-based contingencies require payment before the contingency can be removed and revenue recognized.
Post-billing customer acceptance clauses must expire (implicit acceptance), or be manually accepted (explicit acceptance), before the contingency can be removed and revenue recognized.
Pre-billing customer acceptance clauses require the recording of customer acceptance in the feeder system, or its expiration, before importing into Receivables for invoicing. Customer acceptance or its expiration must occur before the contingency can be removed, and the order can be imported into Receivables for invoicing.

Each contingency that Receivables provides has a corresponding removal event. The removal event determines the action or event necessary to remove the contingency from a transaction or transaction line.

This table lists the revenue contingencies with their corresponding removal events:

Contingency Name	Contingency Removal Event
Cancellation	Contingency expiration date or expiration period
Customer Creditworthiness	Receipt application
Delivery	Proof of delivery
Doubtful Collectibility, due to conditions such as late charges and other fees	Receipt application
Explicit Acceptance	Customer acceptance
Extended Payment Terms	Receipt application
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.