1. Using Revenue Management
  2. Customer Contracts

Customer Contracts

A customer contract is an agreement between two or more parties that creates enforceable rights and obligations.

The contract may exist in the form of a paper document signed by both parties or it can be a contract that's agreed to orally by both parties.

The Accounting Standards Codification (ASC) standard ASC 606 and the International Financial Reporting Standards (IFRS) standard IFRS 15:

  • Define an eligible contract very specifically. See IFRS 15, paragraphs 9 though 16, or ASC 606, paragraphs 625-10-25-1 through 625-10-25-8 for details.

  • Require that in certain circumstances, you must combine contracts. See IFRS 15, paragraph 17 or ASC 606, paragraph 625-10-25-9.

  • Require that you review the transaction at inception and identify your promises to the customer as performance obligations, using the criteria of distinctness. See IFRS 15, paragraph 22, and ASC 606, paragraph 625-10-25-14.

  • Require you to determine at inception whether revenue can be recognized either over time (limited to three circumstances) or at a point in time (all other circumstances). See IFRS 15, paragraph 32 and ASC 606, paragraph 625-10-25-24.

Identify Contracts in Revenue Management

In Oracle Revenue Management, customer contracts are made up of a series of source lines. These sources lines represent different portions of the contract.

For example, if a customer signs a contract to supply computer hardware and also to provide technical support for one year from the date of installation, then the portion of the contract related to the supply of computer hardware is captured as a sales order and the portion of the contract related to technical support is captured as a service contract.

The individual documents are extracted from these applications at different points of time and are interfaced with Revenue Management as source documents. In Revenue Management, these documents are identified as belonging to one customer contract. The Customer Contract document is created with lines of these documents.

To combine multiple source document lines into a single customer contract automatically, there must be a common link between these documents. This common link can be:

  • An identifier that's captured on all the source documents or source document lines, for example, a customer's purchase order number.

  • A specific time period. In other words, all source document lines were created for a customer within a short span of time.

    For example, multiple source document lines created for the same customer within 30 days should form part of one accounting contract for revenue recognition purposes.

A single invoice can, from a revenue recognition standpoint, represent the following three scenarios:

  • All of the items in the invoice were purchased independently and the invoice must be split into ten customer contracts.

  • All of the items were purchased as one bundle and the entire invoice is identified as one customer contract.

  • Some of the items in the invoice are related, and the invoice must be split into multiple contracts with related items added to one contract.

    In this case, the invoice will result in more than one, but fewer than eleven customer contracts.

An organization can also enter into multiple independent customer contracts with the same customer that are fulfilled simultaneously over a period of time. A customer contract can be represented in the upstream applications as source documents in many ways:

  • One accounting contract is represented as one source document.

  • One accounting contract is represented as multiple source documents from the same or different applications.

  • Multiple accounting contracts are represented as one source document.

Related Topics