Sales Contracts - monthly billing rounding issue

[Former Member]

Hello Experts !

Was wondering if anyone has any experience or advice on how to best deal with this scenario.

We are selling Service Agreements in the country of France, using the SD Contract framework.  We are legally required in that country to quote the final customer cost INCLUDING VAT Tax.  Regardless if the pricing conditions are setup to be annual or monthly, because they are managed as base price (without VAT), we are subject to rounding errors when the MWST Ouptut VAT Tax is calculated.

For monthly payment options we can sometimes predict the POST-VAT amount, if there is 1 payment per month and our annual price is divisible by 12, and the contract begins exactly on the 1st of the month.

Also our tax department is very hesitant to manipulate the Tax Calculation, to enforce that the final payment is adjusted, so that the total of all Post-Tax payments would equal the original Customer Quoted amount.

Would really appreciate if anyone has any ideas or experience, on how to configure or customize to achieve the goal of having all X payments (post-VAT tax) come out to exactly the same value as the total post-VAT tax value that was initially quoted.

Thanks in advance,

Eric Z

[Jelena]

Could you post a specific example of when a rounding issue occurs?

My math might be a bit fuzzy, but let's say tax rate is 15% and X is a monthly payment before tax. Whether you do X * 12 * 0.15 or X * 0.15 * 12 - it's the same number. So the only issue can be either a tax rate change or instead of starting from X and building the total amount by multiplication you come up with some total amount and then divide it by 12. That's what we in the biz call "shooting yourself in the foot".

[Former Member]

Thanks Jelena - yes that makes logical sense.  At the moment we're 'shooting ourselves in the foot' in terms of mastering an Annual Price, dividing by 12, considering the first and last payment as unique partial months, and then putting in a base price adjustment on the last month.  you can see from the attached example, that we are quoting a post-tax annual amount of $499.00 , but with the fractional months and fixed VAT rate applied, the overall total amount billed after 12 months comes to 498.99

- You are recommending a monthly Quoted amount that includes VAT instead of annual, to match our billing cycle ?

- And then simplifying the partial month - always billing for 12 full months regardless of the initial start up billing date being in the middle of the month ?

[Jelena]

Unfortunately I don't have any experience with billing plan and partial months, but it seems that in your case it might make sense to just enter the contract into SAP and see what total it comes to based on the billing plan. And then give that amount to the customer. Contract may be blocked from billing until accepted (and deleted if there is no deal).

I think there is some setting in the billing plan to bill at certain time, so if you enter contract duration and some base price it should calculate all the payments for you. You might want to get a consultant with specific expertise in billing plans and subscriptions if you still have trouble with that.

As a side note, perhaps government officials should be made aware of the challenges such ridiculous requirement creates for the taxpayers.

[Jelena]

I'm not an expert on this but would by any chance issuing a credit/debit memo for the difference satisfy the legal requirement?

Purely from the math standpoint I feel in this case you shouldn't be quoting annual price and then dividing by 12 (or whichever periods apply) but instead calculate single payment and then multiply it by 12 (or other period). And then maybe even enter separate line item for each payment instead of using billing plan. This might mean losing some of the functionality, unfortunately, but should help to avoid any calculation issues, I believe.

P.S. What if the tax rate changes during that time frame? Some laws just don't make sense...

[Former Member]

Thanks for your thoughts Jelena !

It turns out that post-contract DM/CM corrections would be too labor intensive to consider.  This would likely satisfy the legal aspect but would open up other Customer satisfaction issues.

12 separate line item payments was considered a while back and was too challenging from a data entry standpoint, for each finished good that we have under contract.

This is the kind of brainstorming we appreciate though.

[Former Member]

Apparently the Tax Rate is very stable, but you're right - when that changes we will have to scramble with a bunch of manual adjustments.