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 Oracle Lease 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 Oracle Lease 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 Oracle Lease 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.

Passthrough Setups

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

Set Up Stream Types

Oracle Lease 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. Oracle Lease 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 and Finance Management Implementation Guide.

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

Set Up Stream Generation Templates

Before Oracle Lease 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, Oracle Lease 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 and Finance 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 and Finance 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.

Vendor Reassignment for Passthrough

The vendor (or vendor site) responsible for delivery of the service on a passthrough is updated if:

Lessors can continue with the same passthrough line with all the relevant terms and conditions, by replacing the passthrough vendor party. When performing a vendor reassignment, the reassignment may be for multiple contracts or multiple contract lines. All contracts and lines associated to the original vendor that match the criteria are reassigned to the new vendor. Any disbursement adjustments required to correct the paid amounts to the original and new vendor are handled during the reassignment. Perform the following steps for vendor reassignment:

  1. Vendor reassignment requests are created from Vendor Reassignment under the Operations tab with Lease Super User responsibility.

  2. Create a Vendor Reassignment Request. Providing the key values: From Vendor/Site, To Vendor/Site, Reassign From Date, Operating Unit, Contract Number, Asset Number, Serial Number (if the request is for a specific contract or asset). Provide a list of passthrough streams for passthrough lines for which the vendor needs a replacement.

  3. Submit the request. The vendor reassignment request has to be approved through a workflow before it is processed.

Once approved, the vendor reassignment request replaces the existing vendor or site with the new vendor or site with effect from the Reassign From Date. The concurrent program, Process Vendor Reassignment for Passthrough, processes the approved vendor reassignment requests.

Note: Vendor reassignment can be performed for a booked or evergreen contract. You can determine when a vendor reassignment has occurred by subscribing to the vendor reassignment business event.

Searching for Vendor Reassignment Requests

You can find vendor reassignment requests by performing a list search in the Vendor Reassignment tab of the Operations page. List search is a search tool that helps retrieve information quickly and easily.

Perform the following steps:

  1. Click Show Filters.

    Note: You can hide filters by clicking Hide Filters.

  2. Select the objects using the following filters:

    • Operating Unit (mandatory field)

    • Contract Number

    • Asset Number

    • Serial Number

    • From Vendor

    • From Vendor Site

    • Request Status

    • Request Number

    You can also include additional filters by clicking Add and selecting a filter.

    Note: You can remove the additional filters from the search criteria by clicking the remove filter icon next to each added criteria.

  3. Click Go.

The search results are displayed.

You can save searches by performing the following steps:

  1. After selecting filters, click Save.

  2. Perform the following actions in the Create Saved Search region:

    1. Enter a name for the saved search in the Name field.

    2. Select the Display in Tile checkbox to display a tile having this search's details in the Vendor Reassignment tab.

      Additional Information: Tiles display the count of search records for the defined search filters. This count can be refreshed by clicking the refresh icon present on each tile. Clicking on a tile will show the filters selected for this saved search.

    3. Select the Set as Default checkbox to make a saved search as the default search.

    4. Click OK.

Even if a saved search is not saved as a tile, it will be displayed in the drop down beside Show Filters/Hide Filters. You can manage saved searches by clicking Manage Saved Search in this drop down.

Note: You can disable list search using the Disable List Search button in Table Diagnostics. After disabling list search, you can find vendor reassignment requests by performing either a simple or advanced search.

A simple search on the Vendor Reassignment tab includes the following parameters:

An advanced search allows you to expand or refine their search criteria.

Functional Prerequisites

Before you can define and use passthroughs in Oracle Lease 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, Oracle Lease and Finance Management enables you to do the following:

Using Passthroughs

The following sections describe how passthroughs are used in Oracle Lease 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 – The payment to the vendor is made as defined on a schedule.
Processing Date – The payment to the vendor is made on the processing date.
Payment Start Date Conditionally Required – applicable if payment basis is defined as Scheduled Date – The 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 – The 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 – The payment date is calculated by adding the remittance days to the date of payment processing.
Disbursement Basis Required Fixed Amount – The payment of a fixed amount is made to the vendor.
Percentage – The payment of a percentage of the payable funds is made to the vendor.

Advance Passthrough Disbursements

You can make advance disbursements to vendors based on a contractual agreement or on an exception basis. Advance disbursements are identified and recognized as advances and the available advance balance is reduced with each disbursable payable invoice. Advance passthrough cannot be defined for usage lines and for passthrough lines in Evergreen.

Select the Advance Payment basis in the Vendors tab of the passthrough line for authoring and disbursement of advance passthrough amount. You must provide the following details for the advance passthrough disbursement contracts:

Note: Multiple vendors cannot be defined.

After authoring an advance passthrough line, you must run the following disbursement programs in a sequential order for disbursements:

Advance disbursement invoice will have the stream type as Passthrough Advance. This can be used to account disbursement as an advance.

Advance disbursement amounts are disbursed when the standard disbursement programs are run as per the disbursement schedule.

Force Passthrough Disbursement

Under certain business scenarios, a Lessor collects money from Lessee for fees and services, and creates a passthrough to Vendor on a disbursement basis of the type Receipt, which can be full or partial. Sometimes, a Lessor creates a passthrough to a vendor even though the cash is not received from the Lessee, and Lessor still creates a passthrough disbursement called a Force Passthrough.

The business process for a Force Passthrough is as follows:

  1. You create a Funding Request with a type of Force Passthrough for a booked contract

  2. You select a Vendor and Vendor Site from the list of values.

  3. The Invoice Type for a Force Passthrough is always Prepayment and no other type can be selected.

  4. Select a stream type.

  5. Optionally, select a passthrough line and enter a passthrough amount.

  6. A Funding Checklist is not applicable for a Force Passthrough.

  7. A Force Passthrough funding request can be approved manually or it can be initiated through Workflow.

  8. Approval of the funding request creates a prepayment transaction which results in a Payables Prepayment Invoice.

  9. When the Passthrough occurs for the contract, the amount is adjusted against the prepayment invoice amount.

The following conditions apply to a Force Passthrough:

For more information on creating a funding request, see Create Funding Request, Chapter 18 - Disbursements.

Disburse Passthrough for Metered Usage Service

A passthrough on a lease or loan contract represents a service being provided by a third party vendor to an end-user lessee. Lessors and vendors generally provide this relationship to their lessees when their customers wish to have simplified billing (rental/lease costs and service costs for the same assets on a single invoice) and to see the total cost of the assets leased in a single value. This arrangement may also be used to consolidate the rental and service charges so their customer only sees it as a single charge and does not distinguish between the cost of the rental and the cost of the service. This can give flexibility in pricing and often includes metered usage for service to provide a subscription-based solution.

Author Contracts with Usage Passthrough Disbursements

Usage-based contract lines (for metered usage services) can now be enabled to passthrough disbursements to vendors. By entering passthrough vendors, and the related terms and conditions for a usage contract line, amounts billed and received for a usage contract line can be disbursed to the servicing vendor(s).

The existing passthrough vendor setup has been extended to usage lines. Some of the options are excluded since usage can only be billed once a meter reading is captured, so advanced and schedule amounts are not available as disbursement bases or options.

If passthrough vendors are enabled for a usage line, the new passthrough vendor attributes can be entered, updated and viewed similarly as with existing passthrough attributes and any required streams, accounting and disbursements are processed similarly to existing passthrough for fee and service contract lines, including the ability to retain a percentage or fee on the billing amount.

Specify a Service or Usage Schedule

Lessors need the ability to define a schedule of service (usage) periods for any fee, service or metered usage service line that is enabled for passthrough. The purpose of the schedule is to define the value being delivered by the service vendor. Therefore, all billings and disbursements, including adjustments much be recorded against each period in the schedule so each party is aware of when and on what invoice the period was billed and when and what invoice it was paid for to the service vendor.

Service contract lines, both standard-priced and those priced based upon metered usage, are defined with a service schedule. In the case of metered usage, the usage schedule also defines the basis on which the usage quantity is counted for pricing by a unit rate.

These details are captured and stored during contract booking in order for use in tracking and reconciling billing and disbursement transactions.

Disburse Passthrough Payments for Metered Usage Service Contract Lines

Similarly to other service and fee contract lines that can be enabled for vendor passthrough disbursements, usage contract lines can also be enabled. If enabled for a usage line, the billing amount is calculated based upon the usage captured for a service period by meter readings and the applicable price list. The amount is billed on a standard invoice.

You can define a fixed amount, percentage amount, or both for disbursement basis and processing fee basis. You can also define a hybrid of fees as well as create your own validations and rules on the application of these. Based upon the passthrough disbursement basis and payout basis, the disbursement amount, less any retention amount or processing fees, is calculated and a disbursement transaction is generated and passed to Oracle Payables to generate a payable invoice to the correct vendor.

Passthrough disbursement rules for one or more vendors can also be specified for the evergreen period. Amounts billed for usage during evergreen are then eligible to be paid to the passthrough vendor based upon the rules setup for the evergreen term.

Processing Fees

Passthrough fees and services create an obligation on the lessor to disburse passthrough proceeds to the service provider who provides the services to the lessee. In such arrangements, the lessor acts as the billing agent for the service vendor. The lessor may charge the service vendor a processing fee for acting as the billing agent to bill and collect on their behalf. The accounting method used here is income accrual. However, lessors may choose to use cash basis accounting and not recognize processing fee revenue until the cash is applied to the lessee billing. The processing fee accrual streams are generated during the disbursement process for passthrough lines. This ensures that the processing fee accruals are generated only upon receipt of receivables invoices for the services.

Generate Passthrough Transaction Details Report for Vendor Reporting and Revenue Recognition

Passthrough reconciliation can be, time-consuming and difficult to get right when passthrough related transactions are not tracked in a consistent way so that vendors can easily understand what contracts, assets and dates a payment is for. When acting as the billing agent, lessors need a common measuring period to identify if services were rendered, billed and collected and paid through a disbursement to their vendors. When such alignment is setup from the initial contract booking, vendor reporting is simpler and can be automated.

Use the Passthrough Transaction Detail Report to view and report historical information on the billing, collection and disbursement of passthrough amounts to a vendor. The report provides a reconciled list of receivable and payable transactions as well as prospective information about what amounts are to be billed, collected and paid in the future.

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.

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:

Passthrough Transaction Activity Report

Passthrough Transaction Activity report displays passthrough activity details and summary for identified periods and passthrough lines, and is enhanced for Advance passthrough lines and Metered Usage Service. It displays passthrough data pertaining to contracts with disbursement in advance as well as contracts which have metered usage service.

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.

Termination of Passthrough Contract Lines

Passthrough Fees and Services create an obligation on the lessor to disburse passthrough proceeds to the service provider who provides the services to the lessee. During termination of a contract, lessors can calculate and process the termination amounts that should be disbursed to the vendor or collected back from the vendor.

Passthrough Disbursement Retrieval (Clawback) During Receipt Reversal

When the receipt which is the basis for passthrough disbursement is reversed or unapplied, the system automatically reverses or retrieves the funds disbursed to the passthrough vendor. For this receipt reversal, the following conditions apply: