Milestones Stage Payments

General

The functionality for milestones and stage payments, as given by the name, is actually two features that may or may not be combined:

• Milestones
  Milestones can be used as more advanced note field that can be used for tracking different events that can occur during the procurement cycle of a product. For each milestone it is possible to define a progress percentage, start and finish date. The individual order between different milestones can also be set and when a milestone is finished one can set the milestone status to Approved. Setting milestone information for a purchase will give the user better follow-up possibilities.
  
• Stage payments
  Stage payments can be used if there is a large value and lead time for the product to be purchased. The supplier might then want to divide the payment of this purchase into separate stages that can be invoiced separately. These stage payments must however be related to verified achievements made by the supplier and cannot be used for advance invoicing as that would require different handling of postings. An approved stage payment will be available in the invoice matching dialogue and will replace the possibility to match against a purchase order receipt.

The combined use of milestones and stage payments is defined by the purchase payment type parameter on purchase order line.

Milestone/Stage Payment Templates

To support the fact that the use of milestones and stage payments includes defining a number of steps to be performed and that these steps could be reused on several purchase order lines. There is also the possibility to defining templates to be used for milestones and stage payment. On these templates you can define the purchase payment type to be used and then enter the different steps that should be performed/approved during the life cycle of the milestone/stage payment. The order in which milestones/stage payments should be approved can be set and also the expected lead time for each step. If the purchase payment type is staged you can also define stage percentage of total purchase order line amount that should be represented per individual stage. Note that the sum of stage percentage for all entered stages should be 100% in order to make it possible to use the template. You should also define which of the different stages was the last stage payment. The last stage payment will, when approved on a purchase order line, trigger a reconciliation process that balances the different accounts used for stage payment approvals and purchase order receipt transactions.

 Default values added on supplier for purchase part

To make the reuse of milestone/stage payments easier you can enter a default purchase payment type and milestone/stage payment template to be used per purchase part and supplier.

 Entering milestones/stage payment lines on purchase order line

When entering a new purchase order line the default values for purchase payment type and milestone/stage payment template found on supplier for purchase part will be fetched. If no default milestone/stage payment template is defined you can add a template to one or several purchase order lines by marking these lines and then defining the template to be used. As a third option you can also freely define a specific set of milestones/stage payment lines to be used for a purchase order line.
The setting of purchase payment type will decide if it is possible to add milestone or stage payment templates and lines. To change the purchase payment type on an existing purchase order line one must first be assured that there are no milestone/stage payments lines defined for that purchase order line.
It is possible to add new milestone/stage payment lines throughout the lifecycle of the purchase order line. It is not until the last milestone/stage payment has been approved that the addition of new stage payment lines is stopped. Update of a specific milestone/stage payment line is possible as long as that line is not approved or invoiced.

Approval of milestones/stage payments

To set a milestone or stage payment to Completed you should approve the line in question. For pure milestones the approval has no other effect than the status for the milestone line being changed and relevant dates on the milestone being set. There are no other system effects. But if you approve a stage payment line there will a number of effects:

• The stage payment state is updated to be Approved and relevant dates are set on stage payment line.
   
• An approval transaction is created in either the inventory transaction history or in the purchase transaction history depending on if the part on the purchase order line is an inventory or a non-inventory part.
   
• The approved stage payment line is now available in the matching window for supplier invoices.

When approving the last stage payment there is, in addition to the actions above, a reconciliation process performed that balances the postings made on all approvals and all receipt transactions (this includes arrival, returns, scrap etc.) so that correct accountings are achieved.

An approval can be revoked and will then reverse the above steps. If the last stage payment has been approved it has to be reversed before any of the other approvals can be revoked.

The approval of stage payments has a number of impacts on the functional flow of a purchase order line

• To approve a stage payment the purchase order has to be released and also the total purchase order line amount must be covered by the stage payments entered.
   
• The last stage payment cannot be approved until all other stage payments have been approved and the purchase order line is closed (all receipts have been made) The approval of all other stage payment lines and all receipts made for a purchase order line can be made in any order (approvals first or receipts first or a mix of approvals and receipts).
   
• The approval of the last stage payment will lock any other action for that purchase order line. If the last stage payment has been approved it will not be possible to return or scrap parts or  undo those actions. Also, it will not be possible to cancel a receipt. To perform any of these actions you would have to first revoke the approval of the last stage payment. Revoking approval of the last stage payment will unlock the purchase order line so that the mentioned actions are possible again.

Invoice matching of stage payments

As mentioned the approval of a stage payment lines makes these lines available for invoice matching. As the invoice matching of stage payments only relates to matching of amount and not quantity there are some things that are handled differently compared to invoice matching against receipts:

• An approved stage payment line can only be invoiced once. It is not possible to perform partial invoicing.
   
• For the same reason as above it is not possible to enter price adjustment invoices for stage payments. In case the supplier wants to perform additional invoicing of an already invoiced stage payment you would need to cancel the connected invoice and then redo the matching.
   
• It is not possible to revoke the approval of an invoiced stage payment. To revoke such an approval you would first have to cancel the invoice.

Financial impact of stage payments

The financial flow for a purchase order that have stage payments will consist of a number of transactions for approval of stage payments as well as normal purchase receipt transactions. There will also be supplier invoices entered against approved stage payments.

An approval of a stage payment can be performed as soon as the purchase order in question has been released. Approvals and receipts (including partial receipts) for a purchase order line can be performed in any order. The only restriction regarding this order is that the stage payment that is set to be the last stage payment cannot be approved unless all other stage payments are approved and all purchase receipts for that line are made (purchase order line is closed). So you could, for instance, approve all stage payments (except the last one) before any receipt is registered or you could register all receipts before any stage payment is approved. Or there could be a mix of approvals and receipts for the purchase order line as long as the last stage payment is approved after all other approvals and the purchase order line is closed. Note that the purchase receipt transactions are the same as those used for a non stage payment order line. When the last stage payment is approved there will be different actions taken depending on the type of part (inventory or non-inventory) that is used on the purchase order line. See below.

The fact that a purchase order line uses stage payments means that supplier invoices can only be matched against approved stage payments and not against receipts. When matching an approved stage payment there will be a comparison between what has been booked on the approval transaction and what is booked on the invoice. Depending on the type of part (inventory or non-inventory) that is used on the purchase order line there will be different actions taken. See below.

Note: Stage payments for inventory parts with Company Rental Asset ownership create postings as for non-inventory part stage payment approvals. Inventory receipt transactions are created without postings, and supplier invoices are matched against non-inventory stage payments approval transactions.

Stage payments for inventory parts

When the last stage payment is approved there is need to reconcile all postings made on receipts as they have booked amounts against Received not yet invoiced but there will never be any invoices booked against those receipts. So when the last stage payment is approved the amounts booked on Received not yet invoiced for receipt transactions are reconciled with the amounts booked against Stage payments for inventory parts. And if there is a difference in these amounts there will be price difference postings added to that approval transaction as well. The approval of the last stage payment will also remove all receipts for that purchase order line from the received not yet invoiced report.

The fact that this reconciliation takes place when the last stage payment is approved will lead to doubled bookings for approvals and receipts when performing closing of books for a certain period as there will be open orders. Note that these doubled bookings are made on both liability and asset accounts and will therefore not have an effect on the profit and loss statement.

When matching an invoice against a stage payment for an inventory part there will be a comparison against the amount booked on the approval transaction that is matched and the invoice amount that is entered. If there is a difference it will be booked as a price difference on the invoice.

Stage payments for non-inventory parts

For a non-inventory part there will be no postings made for receipt transactions. This is regardless of the setting for creating postings for receipt of non-inventory purchase order line found on company actually says that there should be postings created for receipts. Instead the preliminary cost is posted when a stage payment is approved. This means that there is no need for reconciliation postings when the last stage payment is approved.

When matching an invoice against a stage payment for a non-inventory part there will first be a posting that reverses the preliminary postings booked for amounts on approval transactions and then there will be a final posting that book the invoiced amount. There will not be any price difference bookings posted.

Other known limitations for milestone/stage payments

• Stage payments can only be used for a purchase order where the supplier is an external supplier.
   
• Approval of stage payments will not update connected projects. Project updates will be handled by the receipt flow.
   
• When using stage payments in a company that is set to use posting proposal, all matching has to be done manually.
   
• It will not be possible to create self-billing invoices for a purchase order line that uses stage payments.
   
• Cash flow analysis will not be updated by approved stage payments.
   
• There will not be a Approved Not Yet Invoiced report included as a part of this package.