Payment-Based Revenue Contingencies

Revenue recognition of payment-based revenue contingencies depends upon payments made against open transactions. You 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:

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 assigned by default to 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 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 the unearned revenue account.

Using 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 can't associate the customer on the transaction with any of these credit classifications, then the customer is presumed to be creditworthy. If Receivables can associate a customer 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 isn't 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:

You apply 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 pending recognition until after the contingency expires.

Payment-Based Contingencies on In Arrears Transactions

You can use payment-based contingencies to recognize revenue on transactions that use the In Arrears invoicing rule. The In Arrears invoicing rule normally recognizes revenue based on the revenue scheduling rule assigned to transaction lines.

When you assign a payment-based revenue contingency to a transaction line, this temporarily defers revenue recognition until payment is received.

Note: You can't assign payment-based contingencies to transaction lines that have the revenue scheduling rule Deferred Revenue option enabled. You must schedule revenue manually for these transaction lines using the Manage Revenue Adjustments page.

To enable the assignment of payment-based contingencies to transactions that use the In Arrears invoicing rule:

Navigate to the Manage Receivables Lookups page.
Search for the AR_FEATURES lookup type.
Create and enable the AR_CONT_INV_INARREARS_RULE lookup under AR_FEATURES.

If you make a partial receipt application against an In Arrears transaction, the amount allocated to any transaction line with a payment-based contingency is considered for relieving the contingency. The applied receipt amount is further prorated across the revenue scheduling periods proportionate to the amounts deferred.

Activities such as credit memos and adjustments against an In Arrears transaction after the creation of revenue contingencies are treated as reductions against unearned revenue. The corresponding amount is reversed from the unearned revenue account as part of the activity accounting.