Customer Acceptance in R12 Order Management
In different countries a number of companies prefer to accept goods formally before being invoiced by the supplier.
To record and view customer acceptance, Oracle Order Management integrates with Accounts Receivables and
Costing. The customer can accept the goods in any or in combination of the following ways:
Pre-Billing Acceptance (goods are accepted before Invoicing) – Implicit or Explicit
Post-Billing Acceptance (goods are accepted after Invoicing) – Implicit or Explicit
What is ‘Customer Acceptance’?
Customer Acceptance is new functionality with R12 that gives a seller control over the timing of customer
invoicing or revenue recognition and provides the ability to link either of these events with customer satisfaction of a
product or service delivery. Where invoicing used to be automatic based on the standard fulfillment criteria of
shipping a product or service, it can now be delayed until explicit or implicit customer acceptance criteria are
received and logged against a given shipment (sales order line).
There are some initial concepts that must be understood before configuring and using Customer Acceptance,
and they will be reviewed here.
First, there are 2 fundamentally different flows for handling acceptance: Pre-Billing Acceptance and Post-
Billing Acceptance. Let’s look at each separately and how they fit into the fulfillment flow.
For ‘Pre-Billing Acceptance’, as the name implies, acceptance must be recorded before AR invoicing can be
processed. This is accomplished by preventing the Sales Order Line from interfacing to AR until the acceptance
is recorded. Think of it as the Customer saying ‘Do not bill me until I approve the shipment!’ and having
Oracle comply with that demand.
‘Post-Billing Acceptance’, also as the name implies, affects what occurs after AR invoicing has already been
processed. Revenue recognition will not occur for a given line/AR invoice until an acceptance is recorded. From the
Customer’s perspective, there is no change with this type of acceptance. They still receive their invoice with
the normal timing relative to a shipment being confirmed. So in that respect, this acceptance type is less customer
focused and more of an internal (seller’s) process.
We reviewed the 2 acceptance flows, but within each one there are 2 types or acceptance – Explicit and Implicit.
Explicit acceptance is one that requires an actual acceptance to be recorded, so the sales order line workflow
will NOT progress until this is recorded. It requires action either on the part of the customer or customer
service representative in order to open the gate for customer billing (AR invoicing) or revenue recognition.
Implicit acceptance, on the other hand, is one that will automatically be generated when a certain interval of time
has lapsed beyond a specific event for the order line. This interval and the event it applies to are both configurable
in AR and will be explained in more detail later.
Note: Even if ‘implicit’ acceptance is engaged, you have the option to enter ‘explicit’ acceptance prior to the
number of expire days elapsing.
So based on the above terms,, there are 4 kinds of Customer Acceptance as listed below:
1. Pre-Billing Explicit
2. Pre-Billing Implicit
3. Post-Billing Explicit
4. Post-Billing Implicit
The seller does not have to rely on any one of the above types, but rather has the ability to use any or all of them
in the course of their fulfillment cycle.
Customer Acceptance Setups:
Order Management:
1) System parameter in OM "Enable fulfillment acceptance " to "Yes"
First, and foremost, you must enable the System Parameter in OM. Without it, Customer Acceptance simply will not
work. The reason it is setup as a parameter, with a default of ‘No’, is that when enabled there is an AR API that is
engaged for every sales order line. This requires system resources and can result in a performance penalty for the
application, so you don’t want to enable this functionality unless you intend to use it.
2) Show field using the Folder options to show the fields related to customer acceptance.
Use Folder – Show Field to add the required mix of acceptance fields, then save as a named folder, and make it
your default with the option of making it public. If Customer Service intends to use this functionality, I would suggest
you setup a public folder so that every CSR sees the same data when responding to customer inquiries.
Sales order lines- Others tab
3)Enable function security within the Menu
Below are 2 OM functions which must be enabled on the menu structure in order to use Customer Acceptance. By
default, they should be enabled on the ‘ONT_SALES_ORDERS’ menu, but you might need to verify these in System
Administrator if you run into any difficulties. By enabling or disabling these functions within a given
responsibility, you can enforce functional security for who can and cannot perform Customer Acceptance.
Sales Orders: Fulfillment Acceptance
Sales Orders: Update Acceptance Attributes
4) User Access to Order Information Portal (required to perform
Manual Explicit Acceptance)
Receivables (Revenue Management):
1) Revenue contingency
A ‘revenue contingency’ is an AR setup that affects revenue recognition, and ties in with the workflow
associated with Customer Acceptance. Some seeded revenue contingencies are provided in AR, but you can add
new ones as need be
Contingency removal event is one of the required fields in setting up revenue contingency
The removal event determines which Customer Acceptance flow will be engaged in the workflow.
For Pre-Billing Acceptance, set Removal Event to ‘Invoicing’
For Post-Billing Acceptance, set Removal Event to ‘Customer Acceptance’
4
A ‘revenue contingency’ is an AR setup that affects revenue recognition, and ties in with the workflow
associated with Customer Acceptance. Some seeded revenue contingencies are provided in AR, but you can add
new ones as outlined below. You can define new contingencies using the Revenue Management Super User
responsibility.
The example below is a revenue contingency for Pre-Billing Implicit Acceptance, automatically recorded 3 days after
Ship Confirm.
Fig. 4 – Revenue Contingency Example (implicit pre-billing acceptance)
The removal event determines which Customer Acceptance flow will be engaged in the workflow.
For Pre-Billing Acceptance, set Removal Event to ‘Invoicing’
For Post-Billing Acceptance, set Removal Event to ‘Customer Acceptance’
The choices for Removal Event are: Contingency Expiration, Customer Acceptance, Invoicing, Payment, Proof
of Delivery.
If you want Explicit Acceptance, leave ‘Optional Time Attributes’ blank. You will record the actual acceptance data at
the appropriate time in the Order Information Portal (OIP).
If you want Implicit Acceptance, select an Attribute Event and Days Added to Event Attribute. The acceptance will be
automatically generated by a request set that can be scheduled to run daily in the
application.
Choices for Event Attribute are: Fulfillment Date, Proof of Delivery Date, Ship Confirm Date, or Transaction Date.
Assignment Rules can be configured to automatically assign the desired revenue contingency to a sales order line.
Choices can be as general as the Operating Unit, or as specific as a single Item when shipped to a specific
Customer.You define the business scenarios that require Customer Acceptance with these rules, or you can
optionally assign the acceptance manually in Order Management before booking the sales order.
--------------------------------------------
Under Generally Accepted Accounting Principles (GAAP), deferred revenue, sometimes called unearned revenue.
Deferred revenue is a liability that is created when monies are received by a company for goods and services not
yet provided.
What is the deferred revenue?
Deferred revenue is a liability that is created when monies are received by a company for goods and services not yet
provided.
Revenue will be recognized, and the deferred revenue liability eliminated, when the services are performed.
Deferred revenue stems from the accounting concept of revenue recognition, under which revenues are recognized
only when the earnings process is complete. If funds are received and no goods or services have yet been provided,
the process is not complete; thus revenue cannot be recognized, and a deferred revenue liability is recorded.
Specifically, the deferred revenue account is credited, and cash (or otherassets) are debited. Please take a note
deferred revenue is recorded in specific industries under particular circumstances.
Deferred Revenue Example
Like many subscription businesses, A internet Hosting company offers a plan to pay upfront for whole year.
Since deferred revenue represents the value of the services that are left to be delivered at a point in time, if you
purchased the annual plan, $2400 would be added to both the cash account of the balance sheet and the deferred
revenue line. Every month $200.00 would be moved out of deferred revenue and reported as revenue on the income
statement.
Understand why you need to defer revenue.
Why can't you just record the revenue when you actually receive the cash payment? By doing so , this would violate
the principles of accrual-based accounting.
There are 2 principles which provide the foundation for accrual accounting.
1. The first is the matching principle. Under the matching principle, revenues and expenses that correspond to
each other must be recorded in the same accounting period. Using the insurance example above, you cannot
recognize all the revenue in January, because there will be expenses associated with that insurance coverage
incurred throughout the year. These expenses must be matched with their corresponding revenues.
2. The second is the revenue recognition principle. This principle dictates that revenues should only be recorded
when they are both realized (or realizable) and earned. "Realized" revenues are those for which a claim to
cash has been received, and "earned" revenues are those for which a good or service has been rendered.
The implication, then, is that you cannot simply record a revenue whenever cash is paid to your company. If, for
example, a client is prepaying for a continuing service, then you cannot recognize that payment as revenue until you
actually render the service. Until then, the payment represents a liability, or an obligation to the client. This makes
sense to you.
Governing Rule
For revenue to be recognized (earned), SEC have SAB 101/104 sets four key conditions that must be met:
1. Persuasive evidence of an arrangement exists,
2. Delivery has occurred or services have been rendered,
3. The seller's price to the buyer is fixed or determinable, and
4. Collectability is reasonably assured
Understanding the Deferred Revenue Accounting Process
You can create and send invoices for products or services that you will deliver in the future or over a range of time.
Invoice details:
Bill line amount: 6000.00 USD.
Invoicing Rule = Bill in Advance
Invoice Date 2-DEC-12
GL Date 2-DEC-12
Accounting Rule:Type: Accounting, Fixed Duration
Period : Monthly
Number of Periods : 6
Here is accounting Posting
Finally
Keep in mind that deferred revenue generally means that cash has been received by the seller, so the remaining
concern is determining when the cash is recognized as earned revenue. Within GAAP, there are multiple methods that
can be used to recognize revenue. Depending upon which method is chosen, the financial statements may look
drastically different even though economic reality remains the same.
Posted in Oracle Receivable | No Comments »
Revenue Recognition: Does Your Company still Have missing link
within ERP?
Posted on April 25th, 2013 by Sanjit Anand | Print This Post | Email This Post
Are you aware about the top three concerns for finance teams as
1. Financial closing and reporting process
2. Excessive use of spreadsheets
3. and revenue recognition.
In key finding of survey conducted by www.RevenueRecognition , it was observed
92% of public companies rely on manual processes to perform key revenue recognition and reporting
functionality (nearly the same percentage is true for private companies).
o 68% of all companies stated their Financials/ERP systems DO NOT automate all their revenue
recognition and reporting activities.
o 84% of companies that initially stated Financials/ERP systems DO automate revenue accounting are
actually using spreadsheets for these activities.
The finance processes that are most difficult to establish internal controls for are contract management and
revenue recognition.
Companies want to spend less time on data aggregation, manipulation, and validation and more time on
business performance analysis.
Issue with EXCEL
Using Excel as the "system of record" for managing revenue
The problems were...
Excessive time and effort to:
o analyze and arrange an enormous amount of data
o close the books
o create journal entries
o ensure accuracy
Increased time and effort to manage accounting controls
Inflexible reporting and analysis and the volume of data was growing
Missing Link
92% of companies said above, they are using spreadsheets for one or more of the following key revenue recognition
and reporting tasks:
Applying revenue allocation rules
Redistributing revenue (e.g. based on SOP 97-2, EITF 00-21)
Creating revenue recognition schedules for future periods
Reviewing sales orders to identify deferred items
Performing revenue contribution analysis
Reporting on future revenue streams
Creating accounting entries
Regardless of whether your company is private or public, does your organization recognize the importance of
consistent and reliable revenue recognition ?
Revenue Recognition
Revenue Recognition is Principle of accrual accounting that determines the period in which revenue is recognized
Revenue recognition is an earning process
There are rules and regulations on how and when you can recognize revenue
Under GAAP, there are four basic criteria:
o Evidence of an arrangement exists (governing contract & PO)
o Delivery has occurred (transfer title and risk of loss)
o Fee is fixed or determinable (normal payment terms)
o Collection is probable (customer has ability to pay)
Accounting terminology you may hear – FASB and IFRS guidelines, evidence of an arrangement, delivery, fixed fees,
collection, software and non-software rules, multiple element arrangements, fair value (VSOE, BESP, TPE), relative
selling price, revenue allocation, linked arrangements, acceptance, release events, contingencies, future upgrades,
significant discounts, extended terms, software is essential to functionality, deferred revenue release, and so on….In
other words – it’s HIGHLY
Under Generally Accepted Accounting Principles (GAAP), deferred revenue, sometimes called unearned revenue.
Deferred revenue is a liability that is created when monies are received by a company for goods and services not
yet provided.
What is the deferred revenue?
Deferred revenue is a liability that is created when monies are received by a company for goods and services not yet
provided.
Revenue will be recognized, and the deferred revenue liability eliminated, when the services are performed.
Deferred revenue stems from the accounting concept of revenue recognition, under which revenues are recognized
only when the earnings process is complete. If funds are received and no goods or services have yet been provided,
the process is not complete; thus revenue cannot be recognized, and a deferred revenue liability is recorded.
Specifically, the deferred revenue account is credited, and cash (or otherassets) are debited. Please take a note
deferred revenue is recorded in specific industries under particular circumstances.
Deferred Revenue Example
Like many subscription businesses, A internet Hosting company offers a plan to pay upfront for whole year.
Since deferred revenue represents the value of the services that are left to be delivered at a point in time, if you
purchased the annual plan, $2400 would be added to both the cash account of the balance sheet and the deferred
revenue line. Every month $200.00 would be moved out of deferred revenue and reported as revenue on the income
statement.
Understand why you need to defer revenue.
Why can't you just record the revenue when you actually receive the cash payment? By doing so , this would violate
the principles of accrual-based accounting.
There are 2 principles which provide the foundation for accrual accounting.
1. The first is the matching principle. Under the matching principle, revenues and expenses that correspond to
each other must be recorded in the same accounting period. Using the insurance example above, you cannot
recognize all the revenue in January, because there will be expenses associated with that insurance coverage
incurred throughout the year. These expenses must be matched with their corresponding revenues.
2. The second is the revenue recognition principle. This principle dictates that revenues should only be recorded
when they are both realized (or realizable) and earned. "Realized" revenues are those for which a claim to
cash has been received, and "earned" revenues are those for which a good or service has been rendered.
The implication, then, is that you cannot simply record a revenue whenever cash is paid to your company. If, for
example, a client is prepaying for a continuing service, then you cannot recognize that payment as revenue until you
actually render the service. Until then, the payment represents a liability, or an obligation to the client. This makes
sense to you.
Governing Rule
For revenue to be recognized (earned), SEC have SAB 101/104 sets four key conditions that must be met:
1. Persuasive evidence of an arrangement exists,
2. Delivery has occurred or services have been rendered,
3. The seller's price to the buyer is fixed or determinable, and
4. Collectability is reasonably assured
Understanding the Deferred Revenue Accounting Process
You can create and send invoices for products or services that you will deliver in the future or over a range of time.
Invoice details:
Bill line amount: 6000.00 USD.
Invoicing Rule = Bill in Advance
Invoice Date 2-DEC-12
GL Date 2-DEC-12
Accounting Rule:Type: Accounting, Fixed Duration
Period : Monthly
Number of Periods : 6
Here is accounting Posting
Finally
Keep in mind that deferred revenue generally means that cash has been received by the seller, so the remaining
concern is determining when the cash is recognized as earned revenue. Within GAAP, there are multiple methods that
can be used to recognize revenue. Depending upon which method is chosen, the financial statements may look
drastically different even though economic reality remains the same.
Posted in Oracle Receivable | No Comments »
Revenue Recognition: Does Your Company still Have missing link
within ERP?
Posted on April 25th, 2013 by Sanjit Anand | Print This Post | Email This Post
Are you aware about the top three concerns for finance teams as
1. Financial closing and reporting process
2. Excessive use of spreadsheets
3. and revenue recognition.
In key finding of survey conducted by www.RevenueRecognition , it was observed
92% of public companies rely on manual processes to perform key revenue recognition and reporting
functionality (nearly the same percentage is true for private companies).
o 68% of all companies stated their Financials/ERP systems DO NOT automate all their revenue
recognition and reporting activities.
o 84% of companies that initially stated Financials/ERP systems DO automate revenue accounting are
actually using spreadsheets for these activities.
The finance processes that are most difficult to establish internal controls for are contract management and
revenue recognition.
Companies want to spend less time on data aggregation, manipulation, and validation and more time on
business performance analysis.
Issue with EXCEL
Using Excel as the "system of record" for managing revenue
The problems were...
Excessive time and effort to:
o analyze and arrange an enormous amount of data
o close the books
o create journal entries
o ensure accuracy
Increased time and effort to manage accounting controls
Inflexible reporting and analysis and the volume of data was growing
Missing Link
92% of companies said above, they are using spreadsheets for one or more of the following key revenue recognition
and reporting tasks:
Applying revenue allocation rules
Redistributing revenue (e.g. based on SOP 97-2, EITF 00-21)
Creating revenue recognition schedules for future periods
Reviewing sales orders to identify deferred items
Performing revenue contribution analysis
Reporting on future revenue streams
Creating accounting entries
Regardless of whether your company is private or public, does your organization recognize the importance of
consistent and reliable revenue recognition ?
Revenue Recognition
Revenue Recognition is Principle of accrual accounting that determines the period in which revenue is recognized
Revenue recognition is an earning process
There are rules and regulations on how and when you can recognize revenue
Under GAAP, there are four basic criteria:
o Evidence of an arrangement exists (governing contract & PO)
o Delivery has occurred (transfer title and risk of loss)
o Fee is fixed or determinable (normal payment terms)
o Collection is probable (customer has ability to pay)
Accounting terminology you may hear – FASB and IFRS guidelines, evidence of an arrangement, delivery, fixed fees,
collection, software and non-software rules, multiple element arrangements, fair value (VSOE, BESP, TPE), relative
selling price, revenue allocation, linked arrangements, acceptance, release events, contingencies, future upgrades,
significant discounts, extended terms, software is essential to functionality, deferred revenue release, and so on….In
other words – it’s HIGHLYTECHNICAL
Revenue Requirements
Challenge that software companies face results from the volume and complexity of the revenue recognition guidance
that exists.in such case, software arrangements include both software and services. The services could include
installation, training, software design, or customization and modification of the software. If the services involve
significant customization or modification of the software, then contract accounting under SOP 81-1 should be used for
the arrangement.therefore , under such senario , Revenue Requirement should mainly focus on .
1. Compliance
o Calculate VSOE(Vendor-Specific Objective Evidence / ESP (Estimated Selling Price)
o Manage VSOE/ TPE(Third Party Evidence)/ESP
o Tolerances
2. MEA (Multiple Element Arrangements)
o Track MEA from multiple sources
o Classify elements
3. Revenue Recognition
o Standalone sales
o MEA
o Rev rec carveouts according to VSOE/TPE/ESP
o Deferrals & rev rec timing
o COGSs
o GL Posting
4. Reporting
o Revenue compliance
o Billing and revenue reconciliation
o Revenue forecasts
5. Notifications
o VSOE reference during pricing
o Rev rec related notifications (approved exceptions, renewals, collectability status, etc.)
Key Aspects in Revenue Requirements
User-defined Revenue Contingencies
Fair Value Analysis
Auto Accounting Rules
Amortization Methods
EBS R12 Revenue Management Enhancements, filling the Gap of Missing Link
Organizations will also find that Oracle Financials R12 allows them to manage revenue with greater flexibility and
improved accuracy.
Partial Period Revenue Recognition enables the generation of revenue recognition associated with contracts
Revenue Deferral Reasons based on events specific to an enterprise’s business practices
COGS and Revenue Matching synchronize the recognition of revenue with the associated COGS in compliance
with Generally Accepted Accounting Principles
Customer Acceptance (Oracle Apps Release12 Feature).
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Customer Acceptance is new feature introduced in Oracle
Application
Release 12.Customers in some industries have need to defer invoicing and/or revenue recognition for shipped goods
until the customer receives the shipment and formally accepts the material.
In Oracle R12 Customer acceptance/rejection can be captured from customers, customer service representatives, or from
an external system.
Customers can perform the acceptance in following manners.
1. Log into the self-service Order Information portal.
2. Import customer acceptance/rejection from an external system with Order Import/Process Order API.
3. Record Acceptance /Rejection from Sales Order Form.
Oracle Order Management supports only full acceptance or total rejection for each outbound order line. One can set the
number of days for implicit acceptance, after the product has been shipped.
A New System parameter “Enable Fulfillment Acceptance” has been introduced in R12 at Operating Unit level for this
Purpose. Once this parameter is enabled, the Accounts Receivables API is called to invoke the rules engine to validate
customer acceptance on every order line.
The basic business need is to defer invoicing and/or revenue recognition for the shipped goods till the customer receives
the shipment and accepts the material.
Customer Acceptance functionality offers
1. Pre Billing and Post Billing Acceptance
2. Explicit and Implicit Acceptance.
3. It is either Full Acceptance or full rejection, as of now it doesn’t support Partial Acceptance.
4. It support ATP/PTO/KIT/Service & Standard item. Acceptance defined at the parent level (Model) only, and child will
inherit that from parent (e.g. ATO/PTO Model).
As of now Oracle in not support Acceptance in RMA Orders.
Setup for Customer Acceptance:
1.Customer acceptance can be enabled at Operating Unit level through OM systemParameter: Enable Fulfillment
Acceptance – Y/N.
2.We need to enable function security for a given responsibility for the following two
Functions:
a. Sales Orders: Fulfillment Acceptance – This ensures that the action attribute Fulfillment Acceptance is available in the
Actions LOV.
b. Sales Orders: Update Acceptance Attributes – This allows for updating the acceptance attributes of Acceptance Name
and Acceptance Expire days.These are attached to the sales order menu – ONT_ Sales_Order.
3.Define Deferral Reason for Pre – Billing Acceptance
Define 'Deferral reason' under Receivables Revenue Management set up
Navigation: Revenue Management Super User -> Contingency Search / Definition ->
it launches an HTML page.
Define assignment rules to assign the deferral reason to customer, site, item, etc.
a. For defining a Pre-billing Acceptance, use the deferral reason removal event as
Invoicing.
b. For defining a Post-billing Acceptance, use the deferral reason removal event asCustomer Acceptance.
c. For defining an Implicit Acceptance, we need to define the Optional time attributes – Event Attribute and Days
added to Event attribute.
As shown above please note that Order Management supports Ship Confirm Date as only event attribute for the current
release.
The Days added to Event Attribute gets defaulted as Acceptance Expire days inSales Order Line.
Note: The deferral reason defined in AR's Revenue Management setup page is actually used as Acceptance Name in
Order Management
Enable Folder fields for Customer Acceptance in Sales Order Form as well as Quick Sales Order Form.
The Invoice Interface Workflow sub process handles sending interface data to Oracle Receivable for invoice and credit
memo creation.It us ysed to handle pre-billing Customer acceptance. If an order line requires pre-billing Customer
Acceptance, this sub-process will prevent the order line from being interfaced to Receivables.
Pre-Billing Acceptance
Sales Order Line in Pending Pre-billing Acceptance.
· Record Acceptance – explicit or implicit .
· Line status moves to closed and line gets interfaced to AR.
· Invoice generation and Revenue Recognition happen subsequently.
Post-Billing Acceptance
Sales Order Line in Pending Post-billing Acceptance .
· Invoice generation .
· Record Acceptance – explicit or implicit.
· Line status moves to closed .
· Revenue Recognition happens once acceptance is completed .
Explicit Acceptance:
1. Acceptance through Order Information Portal, click on Sales Order Actions –Fulfillment Acceptance from Header or
Lines.
2. Through Order Import.
Implicit Acceptance:
1. Deferral reason has to be defined in AR with event attribute as Ship Confirm date and expiration days.
2. An Implicit Acceptance Request set that records Implicit Acceptance consists of the following concurrent programs:
· Generate Pre-billing Acceptance Program for Pre-billing, Implicit Acceptance
· Revenue Contingency Analyzer for Post-billing, Implicit Acceptance
Process Flow (Explicit Acceptance).
1.Enter orders that need to be accepted by the customer and this acceptance is to be Recorded by the Customer Sales
Representative.
2.View/update Acceptance fields on the order line. The Others tab of the sales orders line displays the folder enabled
Acceptance fields.
3.Sales Order Acknowledgment Report prints Acceptance Required.
4.Ship Confirm the items mview the line status 'Pending Pre-Billing / Pending Post-Billing Acceptance'.
5.Perform Acceptance/Rejection.(Below is Example of Pre-Billing Explicit Acceptance).
6.View Acceptance Details in Sales Orders line.
Process Flow (ONLY Screen short) of Implicit Acceptance
