Contents:
Defining Contracts
System Management
Customer Master Record
Create a New Contract
Contract Types
Fixed Price, Hedged
Fixed Price, Not Hedged
Cost Plus
Contract History
Order Entry
Contract Completion
Fixed Price, Not Hedged
Cost Plus
Fixed Price, Hedged
Contract Completion
Introduction
Contract Pricing allows for the entry of a pricing differential, e.g. +2p to be entered against a customers product terms. This differential is used in conjunction with a cost price from a defined depot to calculate a selling price.
Defining Contracts
System Management : Within System Management / Sales Ledger select the field enable Contract Pricing to allow contract to be entered.
Customer Master Record : Enter the Additional tab on the customers product terms for the product and select the Contract Pricing check box.
The Contracts tab will now appear, select this tab.
Create a New Contract
Right click on the grid and select New Contract.
For each contract, the following data must be entered.
Contract Type – Select the relevant Contract Type, see section below for further details.
Reference – Enter the Contract reference.
Period – Enter the from and to dates for which the contract runs.
Administrator – Select the user responsible for administering the contract.
Agreed – Enter the agreed quantity of the contract.
Delivered – This field is read-only, but will display the total quantity delivered under the contract.
On Order – This is read-only, but shows the total quantity for which an order exists, but where the order has not yet been posted to the ledger.
Remaining – For those customers with a non-zero quantity, the value shown is calculated using Quantity – Quantity Delivered – Quantity on Order.
Small Load Premium – Select this check box to add the SLP to orders. If not selected SLP will not be added.
Notes – This is a memo style field to enter any miscellaneous text associated with the contract.
Contract Types
Fixed Price Contracts
There are often three parties to a fixed price contract:
a. The customer – agrees to purchase product at an agreed price for a fixed period of time.
b. The seller – agrees to sell to the customer a specific quantity of product at an agreed price an within an agreed time frame.
c. The facilitator – the seller hedges the cost of the product with the facilitator for a specific volume over a specific time frame
Typically the price of the product quoted to the seller by the facilitator will be based on Platts and normally quoted in USD per tonne.
Fixed Price, Hedged
The selling price is fixed for the duration of the contract. A facilitator effectively guarantees the margin for such a deal. The ‘facilitated’ cost is always against Platts.
The extra data to be collected for this type of contract is:
Fixed Price – In pence, the value per litre agreed with the customer.
Fixed Cost – Select the Use Fixed Cost check box and enter a value to use this value instead of the cost derived from the Supply Location.
Supply Location – Select the relevant supply location. A supply location may be created for the purpose of the contract. Daily supply prices are entered against this supply location using Table Maintenance.
Facilitator – Select the relevant supplier record.
Price Type – Select from either Collected or Delivered if a Supply Location has been selected.
Nominal Code – Select the nominal code that is to be both debited and credited with the product cost, i.e. the hedging amount.
Fixed Price, Not Hedged
The selling price is fixed for the duration of the contract. There is no cost and therefore no margin guarantee.
The extra data to be collected for this type of contract is:
Fixed Price – In pence, the value per litre agreed with the customer.
Cost Plus
The selling price is agreed to be the price at a given supply location(s) with an agreed margin on top.
The extra data to be collected for this type of contract is:
Formula – The cost price can be based upon a ‘basket of supply locations’ and the price agreed may be based upon the Highest, Lowest or Average of the supply locations prices.
Margin – This value will behave as a negative rebate for the term of the contract and will override any existing, or new, entries in the customers rebate table.
Supply Locations – Select the supply locations that are to be included in the ‘basket’. There must be at least one supply location in the list.
Select the date that is to be used to recalculate the unit price at delivery confirmation.
Contract History
By selecting a contract and then selecting the History tab, the user is able to access a list of orders and delivery transactions which have been supplied under the terms of the contract.
Each transaction displays the ticket reference, type, status, delivery date or intended delivery date and quantity.
Order Entry
If the agreed contract quantity value is exceeded at order entry the following message is displayed.
Nominal Ledger Updates
Once the deliveries have been posted the relevant nominal accounts are updated to:
- Credit the product cost account
- Credit the sales account with the margin
- Credit the VAT account
- Debit the total order value
The Nominal Ledger code entered on a Fixed Price, Hedged contract is both debited and credited with the product cost.
Contract Completion
Fixed Price, Not Hedged
The contract is completed when the time period expires.
Cost Plus
The contract is completed when the time period expires.
Fixed Price, Hedged
The contract is complete when the time period expires. In addition there is a need to calculate amounts due from the facilitator.
If a customer has under drawn, the customer needs to be charged with an amount for the margin short fall.
From the customers product terms, contract pricing tab set the contract to inactive by deselecting the Active tab.
Select the Complete button to display the following screen.
General Completion Details
Displays the number of orders placed during the contract.
Miscellaneous Sale Details
- Average Margin – this is the average margin on all orders placed for the contract duration.
- Quantity Under Drawn – The quantity shortfall of deliveries for the contract agreed quantity.
- Unusable Quantity –
- Amount Due from Customer (Ex VAT) – This value is calculated using average margin x under drawn quantity.
- Create Miscellaneous Sale – Select the check box to create a miscellaneous sale for the customer for the amount due from the customer
- The miscellaneous sale must be created to enable the contract to be completed. If the outstanding balance is to be written off, a credit note can be raised for the customer.
- Product – Select a miscellaneous sale product for the amount the customer owes on this contract.
Facilitator Details
- Facilitator – this is the name of the selected facilitator, as defined in the contract.
- Amount due from the facilitator – this is the volume of orders x cost price.
On selection of OK the miscellaneous sale is created and the contract is completed.
All completion details are displayed on the General tab of the contract.
Contract Completion
For hedged contracts, when a contract is complete – usually when the time period is over – there is a need to calculate amounts due to or from the facilitator. If a customer has under drawn, the customer needs to be charged with an amount for the margin shortfall.
From the customer’s product terms contract pricing tab where, select , for Fixed Price, Hedged contracts there will be a Calculate Completion button. Before use, the contract must be deactivated to signify its completion. The Calculate Completion button will
1. Calculate the amount due to (or from) the Facilitator
2. Calculate, where the customer has under-drawn, any shortfall due to DCC under the terms of the contract
These calculated values may not be directly amended by the operator.
Whilst the amount due to or from the facilitator will be calculated, no automatic Purchase Ledger transaction will be generated. The necessary transaction must be manually created.
The operator has the opportunity to create a read only Miscellaneous Sale transaction in the Sales Ledger against the customer account. If this is not done then the contract cannot be completed. This transaction may not be cancelled. If the user wishes to write off the balance then a credit note must be raised.