Manage Retainer agreements/contract billing in Dynamics 365 Project Operations

Manage Retainer agreements/contract billing in Dynamics 365 Project Operations

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, D365 Project Operations solution now has the Retainers and Advances functionality available to general public. This blog post highlights the capabilities of this functionality.

There are 2 ways you can create retainers and advances for a project contract in D365 Project Operations.

  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.

2. You can create them manually as needed on an ad-hoc basis.

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.

You can create the retainer/advance invoice just like you create any other invoice in Project Operations. The retainer lines will appear under the Advances and Retainers section of the proforma invoice.

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).

You can view and track all your available retainers and advances under the Available retainers and advances tab.

Let’s now go ahead and reconcile some actuals against the retainers and see what happens. I have some time entries and expenses entries already approved and ready to be reconciled against the retainers now.

Notice that when I create the invoice for the project contract now, the system automatically applies the available/not used retainer amounts against the actuals and produces a $0.00 invoice.

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.

Back on the retainers tracking page, you will now see that the remaining amount available for reconciling is updated.

That’s it for today’s post. Till next time!!!

Manage complex deals/contract structures with ease in Dynamics 365 Project Operations – Deep dive into project contracts

Manage complex deals/contract structures with ease in Dynamics 365 Project Operations – Deep dive into project contracts

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.

Contract Line Details contains the key details such as,

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.

Chargeable roles and categories: You can define which roles on the contract line/work component will be Chargeable or Non-chargeable.

Invoice Schedule: The invoice schedule defines how frequently you will bill the customer and the milestone dates, and amounts. You can create milestone schedule manually or you can have the system create it for you based on invoice frequency and billing start date. You can associate each invoice milestone to a project task if needed.

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.

That’s it for this post. This was a deep dive on Project contracts and what flexibilities you have to set these up in Project Operations.

Unify your Project centric business with Dynamics 365 Project Operations – Best of all Microsoft applications in one package for project based organizations

Unify your Project centric business with Dynamics 365 Project Operations – Best of all Microsoft applications in one package for project based organizations

In an earlier post, I wrote about overview of the new Dynamics 365 Project Operations solution from Microsoft and the 3 different deployment modes available for customers today. I was finally able to free up some time to deploy the new general available build of Project Operations. I deployed the fully integrated mode for resource/non-stocked scenarios.

In this blog post, I wanted to dive into other “Fully integrated D365 Project operations with financials for resource/non-stocked scenarios” and showcase the key capabilities. This deployment scenario is suitable for project based organizations who does not have stocked inventory material and production requirements. The support for non-stocked materials is coming soon on the deployment mode.

In this post, we will focus on reviewing the end to end lifecycle of a project from lead to invoicing. The objective is not to go granular on each of the functionalities, but rather to review all functionalities you can use from at each stage. We will review specific features in future posts and deep dive into those.

The infographic below shows the overall capabilities of Dynamics 365 Project Operations.

Deal management experience (Lead > Opportunity > Quote > Contract):

D365 Project Operations provides comprehensive Lead, Opportunity and Quote management features suitable for project based firms. It leverages the best of the industry leading D365 Sales solution in the Customer Engagement platform and lights up the experience right within the Project Operations app.

You can track all required Lead information and once you quality the Work based lead, an Opportunity record is automatically created, where you can add the building block of the work.

In the Resource/Non-stocked based scenarios deployment of Project Operations, you can only add Project based lines right now, but the support for service based items/products is coming soon. (Note: If you have the Lite deployment of Project Operations with no Finance integration, you can still add product based lines, just like you did in the old D365 PSA app).

You can assign a price list/rate card for the opportunity and you can now build the line items on the Opportunity and specify the details such as Billing method, amount, customer’s budget and so on.

Once the Opportunity details are fine tuned with the customer, you can build a proposal/quote directly from the Opportunity and all the line item details are carried over automatically. The Quote lines represent the discrete components of the work that you will present on the quote to the customers.

The Quote line details is where you identify and estimate the details of each quote line/work component such as, schedule, financials, contracting model and so on. This information on the quote line details helps you do profitability analysis on the quote.

If the Project is funded by more than one entities of the customer, you can add the customers/funding sources on the quote line and designate the amount/percent split of the amount for billing and you can also specify the “Not-to-exceed” limit for each customer. This reminds of the Funding sources, funding limits and funding rules functionality that we all know in the classic Project accounting module of D365 Finance 🙂

If the quote line is a Time & Material line, you can specify additional details such as “Chargeable Roles”, “Chargeable Categories”.

You can also create the project to create the ground up estimates from the project tasks/plan and import those into the quote lines. After you have built the quote details, you can review profitability analysis info.

You can also how your quote compares to the customer’s expectations.

When you have won the quote, you can associate the Project ID to the quote/opportunity line and close the Quote as Won. As soon as a Quote is closed as Won, a Project contract is automatically created in Draft status and new project is associated with this contract.

Project and Resource management experience:

Project managers can create detailed project WBS/plan using the capabilities of Project for the web(P4W) capabilities built right into project operations. I am not going to focus on discussing details of the individual functionalities around project management and resource management aspects in this post. We will save that for another post.

Time & Expense management experience:

Your resources can use the intuitive time entry UI to keep track of their daily time and submit periodically/weekly. You can also keep track of employee expenses with the robust expense management module of Project operations, with features such as expense policies, workflows and credit card integration. The expense management experience comes from the proven D365 Finance app and offers advanced expense management capabilities. They can also use the T&E mobile apps.

Managers can review timesheets and expenses in the Approvals work bench and process them in timely manner.

Project transaction corrections and Invoicing

Project finance/billing team can stay on top of their tasks with intuitive interfaces for transactions corrections/adjustments to make sure any adjustments to transactions are processed prior to billing.

The dedicated work benches for Time & Material, Fixed price milestone and advance & retainers billing backlogs are handy providing all the billing backlog information at one place . You can review details such as invoice status, Not to exceed limits and statuses of each transaction to make sure the customer invoices are accurate.

Creating invoices for project contracts is simple. It can be created manually for each contract or an automated batch job can be setup to run on automatic recurrence.

As soon as you confirm the Draft/Proforma invoice, a project invoice proposal is created, which is then ready to be posted. With the industry leading sales tax engine of D365 Finance solution, you don’t have to worry about complexities of sales tax calculations.

Project Operations also provides functionality for advances and retainers billing to customers. This is a new feature that was released in version This feature reminds me the good old customer advance functionality we have in the legacy project management and accounting module in D365 Finance.

Additional you can also setup an automatic retainer schedule to bill customers automatically based on a pre-defined schedule and invoice frequency. You can reconcile actuals against billed retainers and advances.

Revenue recognition, sales tax and financials management:

With the ” Fully integrated Resource/non-stocked scenario/deployment mode, you have full coverage of Revenue recognition, sales tax management and comprehensive industry leading project accounting and financials management. This part of the solution is built on the powerful Project management and accounting solution we all are familiar with in D365 F&O. The module is tailored and modified to work with the overall project operations solution. I am working on a separate blog post to explain the details of how the PMA module of D365 Finance is tailored to work with the Project operations solution. I will explain the key changes and how it works in that post.

That was a happy path blog post on Dynamics 365 Project Operations. This was my second post on the official D365 Project Operations solution on my blog and the idea was to showcase what the solution can do for project based organizations. I am pretty excited about how the different industry leading applications from Microsoft for the project based organizations (Dynamics 365 PSA, Dynamics 365 Finance, Project for the Web) came together powered by Microsoft Dataverse(CDS), providing a seamless application for project based organizations of all sizes

That’s it for this post! We will discuss specific topics on Project operations in future posts very soon.