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Managing Third-Party Royalties
This document outlines a proposal to automate the computation and payment of third-party royalties using Oracle Incentive Compensation. It describes the scope, proposed process and accounting flows, required system configurations and custom code, testing plan, production cutover plan, and anticipated challenges. Key aspects include leveraging OIC to calculate commissions on eligible SKUs, generate payables, and automate the accounting entries while addressing limitations such as inability to reverse collected data and handle partially received invoices.
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Managing Third-Party Royalties
- 1. Automating Third-Party Royalty Computations (CaseStudy using Oracle Incentive Compensation) - Donald Fernandes 2013
- 2. Agenda • Scope ofProject • Proposed Process Flow • Proposed Accounting Flow • System Changes • Test Issue Log • Deliverable Inventory • Production Cutover Plan • Challenges
- 3. Scope and ProblemDescription • Automate Computation of Commission Calculation and Payment Processing for ISV Royalty SKUs • Expense Accounting, Calculation Processing, Payables Approval, Reporting Requirements to be included in scope • Solution based on Oracle Incentive Compensation module framework • All transactions apply to US Operating Unit only
- 5. Proposed Accounting Flow # Accounting Event Event Date MechanismAmt DR Account CR Account 1 Create AR Invoice 01-01-20XX Oracle Autoinvoice 100 TRADE AR 01.0000.12101.0000 DEF_REV 01.0000.40401.0000 2 Recognize ISV Liability 01-01-20XX Manual JV 70 CONTRA REV 01.0000.40402.0000 EXP 01.0000.25126.0000 3 Receive/ Apply Cash 02-15-20XX Oracle Lockbox/ Manual 100 CASH 01.0000.10007.0000 TRADE AR 01.0000.12101.0000 4 Generate AP Invoice 04-01-20XX Oracle OIC 70 COGS 01.0000.53101.0000 TRADE AP 01.0000.22207.0000 5 Reclass 04-01-20XX Manual JV 70 ISV Liability 01.0000.25126.0000 COGS 01.0000.53101.0000 6 Make Payment 04-10-20XX Oracle Payments 70 TRADE AP 01.0000.22207.0000 CASH 01.0000.10909.0000
- 6. Business Rules SKU ProcessingCommission Calculation Payable/ Payments Processing All eligible ISV Royalty SKUs have the below attributes populated: - Floor Price, upto 6 decimals precision - Floor Price Currency - Commissionable Flag - Royalty Salesrep Commission is calculated for AR Invoices (net Credit Memos) which were “Fully Closed” within a given Quarter, to be paid off in the following Quarter AP Invoices will be grouped by SalesRep and Computation Type (FLOOR or STANDARD) Above SKU information needs to reflect signed Contract Agreement All Invoices and Credit Memos have to be posted to GL, prior to getting consumed for OIC AP Invoices will start aging IMMEDIATEly All SKUs for a specific Product Line have the same Royalty Salesrep For foreign-currency Invoices, the Exchange Rate of the Invoice will dictate the Translation Taxation is suppressed to zero Partially Paid Invoices will be excluded from Calculation basis Approvals mechanism leverages existing AME design Unapplications and adjustments on a Fully-Closed Invoice will be reconciled offline, by a custom report
- 7. Scope, Limitations andMitigation Product/ Design Limitation Mitigation Action Collected data in OIC cannot be reversed or purged Test Collections and Computation in SUP on static data sets, before production consumption Partially received AR Invoices cannot be collected in OIC By design and requirement Floor Price does not have Effectivity Dates Process control to maintain static prices for a given Quarter All SKUs for a given Product Line should belong to a single Royalty Supplier SKU QA Report to identify Data discrepancies ISV Liability has to be recognized manually at AR Invoice creation point Automation to be examined in a later phase $0.00 AP Invoices get created if there is no qualifying FLOOR or STANDARD type Cancel the $0.00 AP Invoices, as a manual step
- 8. System Changes (Configurations) InventoryOIC Payables Item Master DFF Role/ Groups Payment Terms Floor Price Details Compensation Plan Supplier Contact Royalty Association Compensation Elements Expression and Formulas Collections Source and Parameters Transactions Report (Summary/ Detail) View Mapping Application Controls Pay Group Liability/Expense Accounts Rate Table
- 9. System Changes (CustomCode) Custom Object Type Custom Object Name Purpose Oracle DB View XXABC_RETRO_PAYMENTS_V Custom Logic to Collect Invoices data Oracle DB Trigger XXABC_AP_INV_LINES_INT_T1 Custom Logic to derive Payment Requestor
- 10. Testing Highlights Examples ofHigh Severity Issues #1 Duplicate Invoices inflates calculation basis #4 Floor Price Missing for some eligible SKUs #13 Receipts get picked up incorrect Quarter #17-22 Various AR scenarios #35 AP Invoice Approval fails #36 Self-assessed Tax gets computed #37 Incorrect Expense Accounting
- 11. Production Cutover Plan Approvals PRDSystem Changes SUP Runs PRD Runs PRD Monitoring
- 12. Production Support FAQs #Question/Symptom Severity Response/Suggested Resolution 1 Can I run Collection task again? Medium You can only collect the same transactions for the Quarter once 2 How do I know that Collections actually collected data? Medium View the log file and it will show the number of records collected for the quarter 3 When loading transactions, it shows this error: There is no transaction in the Transaction Interface Table to load based on the parameters provided High Possible causes: 1. The collected date has already been loaded and the interface is empty 2. Check the date parameters 3. Collection task has not been performed yet. 4. Cash Receipts are not posted 4 Maintain Transactions Report shows Failed Rollup for some invoices High Failed Rollup means that a resource is not in the hierarchy in a compensation group or has not been assigned Sales Compensation group usage, hence, the rollup fails. Check if new resources are assigned properly in a compensation group as a supplier contact. 5 Transactions Register shows Failed Population for some invoices. Low Population during Calculation fails if a transaction does not match any plan element in the compensation plan for the credited resource. Transactions and plan elements are matched using products and the effective product hierarchy. Check the Plan setups, related to product, product hierarchy, product classification rule, sales role assignment to the plan. 6 Why are there zero amount invoices? Low A compensation plan has two components – one for standard royalty and one for floor royalty. OIC calculates for both plans, so if some ISVs do not have floor royalty payments, OIC will still create a separate zero invoice. There is no option to drop this from OIC. Instead, you can cancel the zero invoices in AP 7 What to do if in the payment batch, paysheets are showing zero amounts? Medium Delete the paysheets 8 What happens if the floor price High OIC will take the floor price at the time of royalty calculation. This is a limitation as
- 13. Challenges • Lack ofexperienced SME in OIC • Lack of Detailed Requirements Document • No dedicated environment for Development / Testing (~45 hrs cost) • Cross-functional dependencies • Platform/Product -specific Limitations and Constraints
- 14. Deliverable Inventory Category BR100 Program Code UserGuide Test Case Log SOX / SDLC Approvals MD120 Cut Over Plan