For project based service organizations such as the Marketing agency, Legal and IT consulting world, it is very common to require their customers to partially or fully pay for professional services in advance of the work getting done. This type of billing agreement is called “Retainer agreement” or in simple terms you can call it as pre-billing. In some cases you may also need to define an automatic schedule for retainer billing. In this agreement, the service provider agrees to receive the cash in advance and commits to deliver the services when needed.

When retainers are billed, the revenue is typically deferred and when the actuals on the projects are reconciled against the retainers/advances monthly, revenue is recognized

The Project Management and accounting module of D365 F&O provides this functionality called “Customer advances”, which lets you bill retainers or advances to customers for projects. With the release of version 4.5.0.134, D365 Project Operations solution now has the Retainers and Advances functionality available to general public. This blog post highlights the capabilities of this functionality.

1. Create an automated schedule of retainers to be billed for a certain period of time for a specific amount. System will automatically create the scheduled lines and if you have a automated batch job running for invoice creation, the retainer invoices will be automatically created based on the schedule.

When you create the retainer/advance record on the Project contract, those amounts are just ready to be billed to the customers, once you have marked the lines as “Ready for invoicing”. Until you have billed the retainer, they are not available to be applied/reconciled against actuals.

After you confirm the proforma invoice, the Project invoice proposal is created and is ready for review and posting. Note that the retainer/advance line is created as an on-account transaction on the project, on the in finance side of the solution.(Those who worked on D365 F&O project module can relate this how the customer advance functionality in the project accounting module of F&O works).

When you post the retainer/advance invoice, the revenue is deferred and AR is debited. (Note here that the ledger posting depends on the cost and revenue profile and project ledger posting setup you have in the entity. For my scenario here, I have it setup for deferring the revenue when i bill retainers. I will recognize the revenue when I reconcile my actuals against the retainers).

At this point, you can modify the amount you want to apply if needed or just confirm the reconciliation invoice as is. After you confirm the reconciliation($0.00) invoice, a project invoice proposal is created automatically on the finance side. This invoice contains the actuals for time and expenses you are reconciling and a deduction on-account line to offset those.

Let’s go ahead and post this reconciliation $0.00 invoice and validate the results. Below screenshot shows the posted invoice with all the hours, expenses and deduction on-account lines of the reconciliation invoice.

The voucher shows that the actual revenue accounts were credited and the Deferred revenue was debited and no posting to the AR account, since this was just a reconciliation invoice.

In today’s post, we are diving deep into managing complex project contracts/deals in Dynamics 365 Project Operations. We will break down the building blocks of project contracts and understand what each attribute of the contract represents and how it functions.

Negotiating contracts with customers and prospects can get complicated sometimes and often requires flexibility on how you structure the contract to best match the customer’s needs. With Dynamics 365 Project Operations, you have that flexibility right out of the box.

The Project contract captures the work commitments that are negotiated and agreed upon with the customer. It also contains the associated billing details such as billing frequency, schedule, customers and so on for all the work that will be delivered as part of the contract. The below infographic shows the basic structure of a contract in Project Operations.

Project Contracts data is stored in the Order table in Dataverse. You can create Project Contracts manually or the system can create a project contract automatically upon winning an Opportunity. If you are tracking opportunities in the system, then you can transfer over several details into the contract automatically. There are few key data fields that are required when you create a new contract.

Owning Company: This is the legal entity that owns the contract legally and is responsible for reporting the costs and revenues of the contract. This is the legal entity where the Project contract and project record lives on the D365 Finance side.

Contracting unit: This is the business unit/division of the legal entity that is responsible for the delivery of the project associated with the contract. The Contracting unit drives the resource costing. When you setup the Cost rate cards, you can setup resource costs for each Resourcing company and Resourcing units.

Cost & Sales currency: This is the currency in which costs are reported in the front end. Transactions can be recorded in multiple currencies, but are shown in the cost currency of the contracting unit. Sales currency is the currency used for billing. This is also the currency in which project estimates and actuals are shown.

Price list: This the base price list the contract is associated with. You can override the price list to define the contract specific sales prices/bill rates.

Contract Lines is where the details of the contracting models and financial information resides. Contract lines are the key part the forms the overall contract. Right now in the Resource/non-stocked deployment scenarios, you can only add Project work based contract lines. Product based lines is not supported yet in this deployment model. In the example contract shown below, I have a fixed price work component and the travel & other expenses are setup to be billed on T&M basis.

Billing method: There 2 billing methods to chose from. You can charge a Fixed price for the work component in the contract. This work component can be a project or a task within the project. It depends on how you have structured your projects and contract. You can also setup a contract line to be billed on a Time & Material basis. An example of this would be travel and misc. expenses on project, which you pass the cost to the client. You can add a mark up if needed as well.

Project : Each contract line is linked to a Project. The Project record is the heart of the overall Project Operations solution experience. The Project associated with the contract line is used for the management the work component associated with the contract line. We will dive deep into Project setup, project management in a future post soon.

Transaction types included: On each contract line, you define what type of transactions (Hours/Expenses/Fees) the line includes. You may have one line representing all 3 types, or 3 different lines representing each type or Hours and Fees represented by one line and expenses represented by another line.

Contract line item details: Each contract line has associated line details that sums up the the total value of the contract line. The lien details contains information about transaction class, resourcing unit, Role, category, dates, quantity etc. You can create these lines manually or you can import them from the Initial project estimates to make the job easier.

Customers/funding sources paying for the contract line: You can split an overall contract between more than one customer or you can also split each contract line between multiple customers. This reminds me the funding source, funding limit and funding rules feature we have in the classic PMA module in D365 F&O.

You can split each contract line to be billed to more than one customers and you can set % of split for each customer and you can also setup Not-to exceed limit for each line.