Deciphering Cross Charging Options

Over the past several implementations we have dealt with we have encountered more than a few variations as to how customers want to handle their cross charge transactions.  And as you can well imagine this always leads to numerous questions as to how the functionality works and what exactly the options are.  It is often difficult as an implementer to get across to the client just what the best fit is because they often aren’t sure of what their future structure could look like post implementation.  It’s kind of like dealing with the infamous word problem from elementary school and realizing you may not have enough information to solve the problem and the last train to Clarksville might get there without you.

Basically there are some key questions you will need to take into consideration when addressing cross charging within Oracle Projects.  First thing you will need to determine is are there separate ledgers involved.  If there are then your options are going to be limited.  But before we get into that let’s discuss all of the options first.

Per the Oracle documentation there are three TYPES of cross charging transactions (see below) which use either Borrowed and Lent, Intercompany Billing or No Cross Charge Process as METHODS of cross charging.

Cross Charge Processing Methods

You can choose one of the following processing methods for cross charge transactions.

• Borrowed and Lent Accounting (inter-operating unit and intra-operating unit cross charges)
• Intercompany Billing Accounting (intercompany and inter-operating unit cross charges)
• No Cross Charge Process (intercompany, inter-operating unit, and intra-operating unit cross charges)

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The Borrowed and Lent method allows you to cross charge between organizations (intra-operating unit) or between operating units (inter-operating unit).  You can only charge between operating units if the legal entities (ledgers) are the same, which they typically are not.  This method creates accounting entries to pass costs and revenue without generating internal invoices.  Transfer pricing can be defined for this method.

The Intercompany method allows you to cross charge between legal entities (intercompany) or between operating units (inter-operating unit).  This method is typically chosen when companies are required to generate internal invoices due to legal and/or statutory requirements.

The No Cross Charge Method is used if there is not a requirement to process the cross charge transactions, but there is still a requirement to reflect charges or revenue from one project to another project.

Direct Charge – This functionality basically supports charges across Operating Units (OU) by implementing the proper Provider/Receiver controls (set Cross Charge Process Method to None)  users can book time and or other charges directly to a project in a different OU than they reside in.  This option would not use Transfer Price rules to process cost/revenue relief.  The AutoAccounting setups would have to be configured to properly account the transactions to support the client’s business rules.  In addition, this option will not support charging across ledgers.

Borrowed and Lent – This functionality works exactly like the standard Direct Charge with the exception that it uses Transfer Price Rules to address cost relief/revenue award for the providing organization.  In addition the Provider/Receiver controls would need to be set to have a Cross Charge Process Method of Borrowed and Lent.  You will have to setup AutoAccounting Functions for Borrowed and Lent processing for this functionality. This option will not support charging across ledgers.

Inter-Project Billing – Unlike Direct Charge and Borrowed and Lent functionality, this functionality will require the setup and maintenance of multiple projects. This method requires that the Provider/Receiver controls have the Cross Charge Process Method of None.  In this model one project will bill the customer while multiple other projects charge into it.  This method will support charging across ledgers.  In addition, this method also allows for multiple “Receiver” projects in the receiving OU.  In addition, this functionality will result in the generation of internal AR/AP invoices.  The providing projects will generate internal AR invoices that will result in internal AP invoices for the receiving project.  Therefore, this functionality will require that Provider OU’s be setup as suppliers and Receiver OU’s be setup as customers.  A key advantage to Inter-Project Billing is that even though costs are initially collected across different projects they are captured in the project that is billing the customer.  Additionally, the associated AP Invoice for the Receiving OU is created automatically via the PRC: Tieback Invoices from Receivables process that is run in the Provider OU.  These invoices will be imported into AP via the Open Invoice Interface.  The Supplier Invoice Account Generator will have to be modified to properly account for internal AP invoices.  In addition, the AutoAccounting in Projects will need to be configured as well to generate the appropriate accounting.  This option will support cross charging across ledgers.

Intercompany Billing – This functionality works the same as the Inter-Project Billing functionality with one key exception, there can only be one receiving project per organization.  In this case Provider OU’s will bill the Receiver OU’s Intercompany Billing project only.  In addition, the Provider/Receiver controls must have the Cross Charge Process method set to Intercompany Billing.  The project in the Receiver OU that is responsible for billing the customer will NOT have the costs from the various other projects that supported it as these costs are billed to the OU level Receiving Project.  In addition, you will need to configure the Intercompany Revenue and Intercompany Invoicing AutoAccounting functions.  The Supplier Invoice Account Generator will also have to be modified to properly account for internal AP invoices.  This option will support cross charging across ledgers.

So as a guide to get you there; think of cross charging in terms of the following matrix, which will provide you with a rule of thumb approach for making your decision.

Our next installment will deal with performing Cross Charging with a non-standard process.