Understanding Sales Overage Processing
In many leases with retail tenants, you establish rent that is based upon a portion of reported sales. In return for a lower fixed rent or no fixed rent at all, tenants pay a percentage of their sales to the landlord. This billing process is called percentage sales or sales overage because the sales usually must be over (exceed) a certain level (breakpoint) before rent is billed. You can change the percentage charged as sales increase to provide tenants incentives to increase their sales.
Sales overage is attractive to tenants, especially start-up businesses or tenants moving to a new location, because generally:
The overhead for operation from a higher fixed rent is reduced.
A major portion of the landlord's revenue is tied directly to the success of the tenants' business.
To promote the tenants' success, the landlord invests in maintaining the property's attractiveness and general appeal and leases space to a variety of business types.
Sales overage is attractive to landlords because generally:
The revenue associated with sales is potentially higher than for a fixed rent amount.
Establishing rent as a percentage of sales dollars results in an automatic hedge on inflation.
This table describes the steps to set up and calculate sales overages:
Steps |
Description |
|---|---|
Enter sales overage information. |
You specify which leases to process for sales overage billings by adding sales overage information in the Sales Overage Information program (P15013). |
Generate expected sales report. |
After you set up the lease to report on sales overages, you must run the Expected Sales Report Generation program (R15780) to create records in the Sales Report Control table (F1540B). |
Enter expected sales. |
By creating records in the Sales Report Control table (F1540B), you need enter only sales amounts; you do not have to enter lease, building, and tenant information. You use the Expected Sales Report Entry program (P1540) to locate records to which sales amounts are added. Note: Sales are always entered by calendar year, not the fiscal pattern of the company attached to the lease. |
Enter unexpected sales. |
If the tenant reports unexpected sales, you can add records directly into the Sales Report Control table (F1540B) for these sales amounts. Note: Sales are always entered by calendar year, not the fiscal pattern of the company attached to the lease. |
Review sales report batches. |
After you enter sales amounts, you must post the batches by running the Sales Report Batch Review program (P15206) to update the records in these tables:
|
Post sales report batches. |
When you post sales report batches, the system updates the F1541B table or the F15410 table. |
Adjust posted sales. |
If errors were made while entering sales amounts, you can use the Adjust Sales Reports program (P1540) to adjust posted sales records and repost them. Additionally, you can generate adjusted billings. |
Generate sales overage billings. |
After you enter sales amounts, you generate billings by running the Sales Overage Generation program (R15120). |
Generate the Billing Edit/Register report. |
The Billing Edit/Register program (R15300) is processed when you run the R15120. This program validates that the batch is ready to post. (Release 9.2 Update) The R15300 has been updated to determine if billing records should be included in the revenue recognition process. The program compares the information on the billing transaction to the revenue recognition trigger configuration, and if the record should be included in the revenue recognition process, the system validates that the appropriate AAIs and accounts are set up. |
Post billings. |
After you generate billings, you must post them to create the invoice and voucher transactions. You can post batches at an Approved status. Depending on the lease, you run the R15199 program to generate either invoices or vouchers. For payable leases, the system creates vouchers with a Supplier Invoice Number (VINV) as a combination of doc type, doc number (for the voucher) and company. (Release 9.2 Update) The R15199 has been updated to determine if billing records should be included in the revenue recognition process by comparing the information on the billing transaction to the Real Estate trigger configuration. If at least one pay item from the billing invoice is included in revenue recognition processing, the system writes journal entries to the performance liability accounts instead of writing to the billing accounts and creates the corresponding entries for revenue recognition in these tables:
|
Track and report sales. |
The system provides various reports that you can use as an alternative to online inquiries. You can also use these reports to compare weekly sales and report occupancy rents. |