ORACLE APPLICATIONS

WHITE PAPER
PROCESSING COMPLEX PURCHASE
ORDERS AND RETAINAGE IN
PAYABLES
MARCH 2009

Contributors: Cheryl Riniker, AP Center of Expertise
Versions: 1 March, 2!
"racle#Client Confi$ential % &or internal use only 1
Contents
Introduction'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''(
Objective''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''(
Scope''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''(
Background''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''(
Terms''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''(
Processing Complex Purchase Orders and Retainage in Payables''''''''''''''''''''''''''''''''')
Overvie'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''')
Set !p Steps "or Complex Purchase Orders and Retainage'''''''''''''''''''''''''''''''''''''')
#dditional Re$uired Set%!p Steps "or Complex Purchase Orders and Retainage' '*
&ntering a Complex PO'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''+
&ntering #dvances''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''1
&ntering Progress Payments''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''12
&ntering Retainage Release Invoices'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''1,
'ixed Price Contract Calculation &xample''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''1*
Technical In"ormation''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''1+
In"ormation Sources''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''1-
"racle#Client Confi$ential % &or internal use only 2
Introduction
Objective
To provide an overvie o" the Complex Purchase Order and Retainage "eature "rom the Payables
perspective ith the hopes o" giving the reader a good understanding o" the "eature( the setups(
ho to enter advances( progress payments( and retainage amounts)
Scope
This paper ill cover the "unctional side o" processing complex purchase orders and retainage in
payables and discuss some o" the options and their impact)
Background
The ability to enter complex purchase orders and retain portions o" the purchase order until a
particular milestone is met is a ne "eature in R*+)
Terms
Advance: ,enerally a one%time prepayment made be"ore ork on the contract begins hile
contract "inancing in"uses money to the supplier as ork progresses)
Retainage: The common practice o" ithholding a "ixed amount - percentage o" payment until all
ork under a contract is complete and accepted) The retainage terms are agreed upon by the
buyer and supplier and are intended to make sure that the supplier "inishes the ork as per the
contract) Retainage is also called .retention/ or .contractual ithholds/) #t the end o" the project
or hen agreed events have occurred( the supplier ill re$uest the amount retained and payment
ill be made to release it)
Retainage Rate: Rate applied to Invoices( hich determines the "raction o" the Invoice amount that
is ithheld "rom payment)
Recoupment: 0i$uidation o" previous "inancing payments "rom payments made "or the delivery o"
services)
Recoupment Rate: Rate applied to Invoices that determines the "raction o" the Invoice amount
used toards recoupment o" previous "inancing payments)
Progress Payments: Invoices representing progress are matched to the purchase order( updating
the purchase order ith the progress and paying "or the ork done)
Progress Payment Schedule1 Represents a schedule o" services and ork ith associated
payments
Progress Payment Rate1 !sed on a Cost Reimbursement Contract) This represents the rate at
hich costs incurred by the Contractor are reimbursed)
Contract Financing: Typically used in Public Sector Contracts) Contract "inancing is paid based on
ork per"ormed or cost to date) I" the contractually speci"ied per"ormance or cost milestones are
met( "inancing is given to aid in the completion o" subse$uent ork)
Pay Item: Re"ers to a speci"ic ork-service component o" the Progress Payment Schedule( and its
associated payment amount
"racle#Client Confi$ential % &or internal use only (
Financing Complex Work Case1 In this case( pay items are actually loans given at various stages
that are later recouped hen invoices are made) 'inancing payments are any payments that are
made be"ore "inal acceptance o" ork or products) # Progress Payment Rate is applicable only in
this case) In this case( the total amount o" pay Items can be less than or e$ual to the line amount)
Retainage is not ithheld on Progress Invoices Treated as Contract 'inancing 2 it is ithheld "rom
the delivery o" the goods or services)

Actual Complex Work Case: In this case( pay items are actual invoices) 3ere( payments are "or
accepted supplies or services( including payments "or accepted partial deliveries) This type o"
contract can have #dvances) In this case( the total amount o" pay Items should be e$ual to the line
amount)
"racle#Client Confi$ential % &or internal use only ,
Processing Complex Purchase Orders and Retainage in Payables
Overvie
Complex payment terms and conditions "or "ixed price contracts can be captured during the
procurement contract "lo) This includes options "or progress payments( advances and contract
"inancing( and retainage) These terms and conditions are supported in Oracle Payables hen
recording invoices and managing payment execution during the li"etime o" the contract) Seamless
and real time status o" the purchasing contract( progress( "inancing and advances balances(
retainage and retainage release is provided to both Oracle Payables and Purchasing users)
Set !p Steps "or Complex Purchase Orders and Retainage
There are to setups steps that are re$uired i" the complex purchase orders and retainage "eature
ill be used)
*) Create a document style in Oracle Purchasing)
Responsibility1 Purchasing
4avigation1 - Setup - Purchasing - 5ocument Styles Create
5e"ine hether the complex PO can include advances( retainage( and progress payments)
Pay Items can be 6ilestone( Rate( or 0ump Sum) 'or 'ixed Price Services( rate based pay
items ill be considered $uantity based matches and milestone and lumpsum ill be
considered amount%based matches hen evaluating billed( planned( and tolerances)
6ilestone pay items are based on a milestone in the contract or event that needs to be "ully
complete be"ore the contractor can claim the associated payment)
"racle#Client Confi$ential % &or internal use only )
Rate pay items are based on a 7Rate8 o" ork completion) Payments "or these can be claimed
as units o" ork are completed)

0ump Sum pay items( as the name suggests( are based on a 70ump Sum8 amount allocated to
a portion o" ork) Progress payments can be released "or these pay items based on the level
o" completion)
I" the .Treat Progress Payments as Contract 'inancing/ option is selected( then pay items
entered "ollo the 'inancing Complex 9ork case) I" the option is not selected( then pay items
"ollo the #ctual Complex 9ork case)
Note: The pro"ile option PR: Amount !ased Services "ine #ype speci"ies ho services are to
be $uanti"ied and ordered on the transaction document) In order to use the Complex Services
"unctionality( the value "or this pro"ile option should be set to 7'ixed Price Services8( hich
means that services ill be ordered as an amount) This setup is "ound per"ormed in the
System #dministrator responsibility under System Pro"iles)
+) Create a retainage account in 'inancials Options setup)
Responsibility1 Payables
4avigation1 - Setup - Options - 'inancials Options
&nter the retainage account to use during accounting)
Note: 3istorically the prepayment account entered here ould de"ault to the supplier site and
be used hen creating prepayments "or the supplier) 3oever( the ne #dvances and
Contract 'inancing prepayments introduced ith this solution ill use the distribution account
on the Purchase Order and not the supplier site)
#dditional Re$uired Set%!p Steps "or Complex Purchase Orders and Retainage
In addition to the to set%up steps re$uired to enter a complex purchase order and use the
retainage option( there are three other set%up steps that impact ho the PO8s and Invoices are
processed)
"racle#Client Confi$ential % &or internal use only *
*) 5e"ine matching tolerances in the Invoice Tolerances Template
+) Speci"y supplier terms and controls in the supplier setup
:) 5e"ine approval rules in Oracle #pprovals 6anagement
&ntering a Complex PO
Because this document "ocuses on entering data in Payables( this section ill only discuss the
basic steps to enter a complex PO) Complex purchase orders can only be entered through the
Buyer 9ork Center navigation)
*) Create a procurement purchase order in Oracle Purchasing)
Responsibility1 Purchasing
4avigation1 - Buyer 9ork Center - Orders
Select the complex PO document style in the Create drop don box or select 76ore8 to "ind the
complex PO document style i" it is not listed in the 0O;)
+) &nter the Purchase Order header in"ormation and enter the line details)
"racle#Client Confi$ential % &or internal use only +
:) #"ter entering the line( select the !pdate icon to enter the 'inancing Options
<) &nter additional the pay items "or hich a payment should be made)
"racle#Client Confi$ential % &or internal use only -
"racle#Client Confi$ential % &or internal use only !
=) &nter the distributions) The advance to be paid ill sho on distributions)
>) Save and #pprove the PO
&ntering #dvances
#dvances can be entered through the invoice orkbench or through the $uick invoices "orm as
prepayment type invoices that are matched to a purchase order) Sel" Service &ntry has been
expanded to support searching and selecting #dvances and 'inancing ros hen submitting
6atched invoices) This document ill sho entering an advance through the invoice orkbench)
Create a prepayment invoice in Oracle Payables)
Responsibility1 Payables
4avigation1 - Invoices - &ntry - Invoices
*) Select Prepayment type invoice( and enter the PO number)
"racle#Client Confi$ential % &or internal use only 1
+) &ither enter the Prepayment line directly in the lines tab or use the 6atching indo to "irst
revie possible choices be"ore selecting one to match to)
"racle#Client Confi$ential % &or internal use only 11
Once an #dvance is approved and paid( the status ill be updated to #vailable) It ill be a
combination o" this status and the settlement date that ill determine hen the prepayment is
ready "or automatic recoupment on progress invoices)
&ntering Progress Payments
Progress payments can be entered through ?uick Invoices( Invoice &ntry in the Invoice
9orkbench( the Pay on Receipt Import process "rom Purchasing( the Payables Invoice Import
process( or initiated as a payment re$uest "rom iSupplier) The example in this document ill sho
entering a progress payment "rom the invoice orkbench)
Create an invoice in Oracle Payables)
Responsibility1 Payables
4avigation1 - Invoices - &ntry - Invoices
*) Select Standard type invoice and enter basic header in"ormation( along ith the PO to match)
+) Select the 6atch button( and match to the PO
:) The retainage amount is calculated @in this example( *AB o" C:AAA or C:AAD)
"racle#Client Confi$ential % &or internal use only 12
<) On the next progress payment( hich is also "or C:AAA)AA( the retainage ill be only C=AA
because that as the maximum retainage amount de"ined in the "inancing options)
"racle#Client Confi$ential % &or internal use only 1(
&ntering Retainage Release Invoices
Retainage Release invoices can only be entered by the Payables #nalyst through the Invoice
9orkbench)
Create an invoice in Oracle Payables)
Responsibility1 Payables
4avigation1 - Invoices - &ntry - Invoices
*) &nter invoice type .Retainage Release/
+) &nter the Release #mount 4et o" Tax)
"racle#Client Confi$ential % &or internal use only 1,
:) The retainage account is relieved( and the accrual account is debited the released amount)
"racle#Client Confi$ential % &or internal use only 1)
'ixed Price Contract Calculation &xample
The recoupment amount used to o""set the prepayment made is calculated based on the least
value o" either the invoice amount multiplied by the recoupment rate( the invoice amount less the
retainage amount( or the prepayment amount less any other recoupment amounts)
PO Amount: $100.00
Prepayment Amount: $ 40.00
Recoupment Rate: 80%
Retainage Rate: 15%
Invoice Line Amount: $10.00
Retainage: -$1.50 $10 ! 15%"
Recoupment: -$8.00 Lea#t o$:
$10.00 ! 80% % $ 8.00 & Line Item Amount
$10.00 & 1.50 % $ 8.50 & Amount 'ue a$ter retainage
$40.00 & 0 % $40.00 & Remaining Prepai' Amount
%%%%%%
$ 0.50
Invoice Line Amount: $(0.00
Retainage: -$).00 $(0 ! 15%"
Recoupment: $-*+.00 Lea#t o$:
$(0.00 ! 80% % $48.00 & Line Item Amount
$(0.00 & $).00 % $51.00 & Amount 'ue a$ter retainage
$40.00 & $8.00 % $*+.00 & Remaining Prepai' Amount
%%%%%%%
$1).00
Invoice Line Amount: $*0.00
Retainage: -$4.50 $*0 ! 15%"
Recoupment: -$0.00 Lea#t o$:
$*0.00 ! 80% % $+4.00 & Line Item Amount
$*0.00 & $).00 % $+5.50 & Amount 'ue a$ter retainage
$40.00 & $40.00 % $ 0.00 & Remaining Prepai' Amount
%%%%%%%
$+5.50
PO Amount: $100.00
Prepayment Amount: $-40.00
Payment# & Retainage: $-45.00
%%%%%%%
Retainage Amount ,ue: $ 15.00
"racle#Client Confi$ential % &or internal use only 1*
Technical In"ormation
.he follo/in0 files are rele1ant to the Co2plex P"#Retaina0e feature'
AP3RE.A45A6E3RE7EA8E3P96 :apc/relb'pls;
"racle#Client Confi$ential % &or internal use only 1+
In"ormation Sources
OracleE Payables !ser ,uide( Release *+( Part 4o) B+=<=<%A<
% #dvances and Progressive Contract 'inancing
OracleE Purchasing !ser ,uide( Release *+( Part 4o) B+F>>G%A*
% &ntering Complex 9ork Purchase Order 0ines
% Complex 9ork in the Procurement Suite @#ppendix ,D
OracleE iSupplier Portal !ser ,uide( Release *+( Part 4o) B:*>A*%A*
4ote :G>+=>)*1 '#? Procurement Services in Release *+
4ote =>A:+:)*1 3o to Setup 5ocument Se$uence Category "or Retainage Release Type
Invoices
"racle#Client Confi$ential % &or internal use only 1-