Retainage and Retainage Release in Or...

Retainage and Retainage Release in Oracle Payables for a Complex Purchase Order

Retainage represents funds withheld from payment to ensure that the contractor finishes work as agreed. The buying organization releases these funds only after verifying that the contractor has fulfilled all contractual obligations. Retainage is also called "retention" or "contractual withholds".
With Oracle's Complex Work feature, contract administrator can negotiate retainage terms with the contractor and capture these as part of the contract. These terms include Retainage Rate and Maximum Retainage Amount.

Retainage Rate
The Retainage Rate determines the percentage of the amount requested that will be withheld before releasing payments to the contractor. This attribute appears on the PO Line if the Document Styles enables the use of Retainage. The Retainage Rate specified on the PO Line is applied to all Standard Invoices billed to the Pay Items of the respective Line. Based on the Retainage Rate, a certain percentage of the Standard Invoice Amount is with-held as a Retained Amount.

Maximum Retainage Amount
The Maximum Retainage Amount defines maximum amount of Retainage that can be withheld on a Contract Line. The Maximum Retainage Amount attribute appears on the PO Line if the Document Style enables the use of Retainage. Every time Retainage is withheld on an Invoice, the application checks that the total retained amount does not exceed this value.

 

Set Up Steps for Complex Purchase Orders and Retainage
Following three mandatory setups steps are required if the complex purchase orders and retainage feature will be used.

1. Create a new document style in Oracle Purchasing for handling Complex PO.
Responsibility: Purchasing
Navigation: Setup > Purchasing > Document Styles > Create
Define whether the complex PO can include advances, retainage, and progress payments

 

2. Create a retainage account in Financials Options setup.
Responsibility: Payables
Navigation: System Administrator > System Profile Options
Set the value for POR: Amount Based Services Line Type profile option to ‘Fixed Price Services’

 

3. Create a retainage account in Financials Options setup.
Responsibility: Payables
Navigation: Setup > Options > Financials Options
Enter the retainage account to use during accounting

 

 

Entering a Complex PO

1. Create a Purchase Order using Buyer Workbench. Select the Document style ‘Complex PO’ just created earlier
Responsibility: Purchasing
Navigation: Buyer Work Center > Orders

 

2. Enter the PO Header and Line details

 

3. Click on ‘Update’ icon on the PO line and enter the Maximum Retainage Amount and the Retainage Rate

 

4. Enter the additional pay items for which a payment should be made 

 

5. Enter the PO Charge account on PO Distribution and Save and Approve the PO

 

 

Entering Payable Invoices

1. Once supplier sends the invoice after the first milestone is met, raise a PO matched invoice
 

 

2. Oracle automatically creates a Retainage line based on the Retainage Rate defined earlier on the Purchase Order

 

 

3. Supplier sends the invoice after the second milestone is met. Raise a PO matched invoice

 

 

4. Oracle automatically creates a Retainage line based on the Retainage Rate defined earlier on the Purchase Order

 

 

5. At the end of the project the supplier can submit a Retainage Release Invoice for release of retainage withheld on the Contract. If the contractual clauses or other conditions governing the release of the retainage are met, the buyer can release the retainage amount applicable. Oracle has introduces a new Invoice type called ‘Retainage Release’ for this purpose

 

 

6. Enter the PO number for which you want to release the Retainage

 

 

7. Enter the Retainage Amount that you want to release and click on ‘Release’. You cannot enter an amount greater than the Retained Amount

 

 

8. An invoice of Invoice Type ‘Retainage Release’ is created for the Retained Amount

 

 

9. The Retainage details will be visible at invoice Lines

 

 

10. The Retainage Account will then be offset to Supplier Liability account for subsequent Payment