PO Encumbrances

In addition to tracking customer POs, you can enter an encumbrance percentage on the Contract Profile page to set aside a portion of the PO balance for tax purposes. The encumbrance percentage should be reserved for sales tax, use tax, inclusive value-added tax (VAT), or exclusive nonrecoverable VAT.

For example, suppose that you enter an encumbrance percentage of 10 percent on the Contract Profile page and you have a PO with these amounts:

Original PO Amount	Remaining Amount	Committed Amount	Encumbrance %
20,000 USD	1,100 USD	0 USD	10

When a billable transaction of 1,000 USD is run through the Billing to Projects/Contract Interface process (CA_BI_INTFC), the PO amount is successfully applied to the transaction with the resulting totals:

Original PO Amount	Remaining Amount	Committed Amount	Encumbrance %
20,000 USD	1,100 USD	1,100 USD*	10

*1,000 USD is used for the transaction and 100 USD is used for the 10 percent anticipated tax.

If the invoice is finalized with an actual tax rate of 8 percent after running the Billing to Projects interface (BIPCC000), the PO amounts will be:

Original PO Amount	Remaining Amount	Committed Amount	Encumbrance %
20,000 USD	20 USD*	0 USD	10

* 1,100 USD – 1,000 USD – 80 USD tax = 20 USD

If there are insufficient funds in the PO to cover the transaction amount plus the encumbrance amount, the transaction goes to an error table when you run the Billing to Projects/Contract Interface process. However, if you underestimate the tax amount, the system allows an invoice to pass through, resulting in an exhausted PO. For example, if your encumbrance is 10 percent, but the actual taxes are 12 percent, the system does not error out and you will go negative on the PO:

Original PO Amount	Remaining Amount	Committed Amount	Encumbrance %
20,000 USD	(20 USD)*	0 USD	10

* 1,100 USD – 1,000 USD – 120 USD tax = –20 USD

Note:

Set up your encumbrance percentage on the Contract Profile page to set aside a portion of the PO balance for tax purposes. This encumbrance percentage must not be lower than your expected tax percentage.