We have extensive maintenance and support contracts that are multiple years with an annual prepayment requirment. In International Markets we are getting a great deal of push back on the need for a PO each year, even though Business Partner and/or End User has signed a multi-year contract. What is your experience?
PO Requirements in International Markets for Recurring Maintenance and Support Contracts
Answers
But let me ask for clarification: are you asking for POs for the future periods today? That is, asking for three annual POs to cover a three year contract, and having those POs signed up front for future payment?
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If your contract is signed by an authorized customer official, make sure your annual invoice for support payments is issued in good time before each renewal period. I can foresee cases where the customer's purchasing office requires a PO for each year simply because of internal procedures to get your invoice approved for payment, but then you should know that and simply start the PO request process earlier so you can then issue your invoice in time, quoting the PO# on your invoice. Govt agencies often require annual PO's to meet local laws.
Are you using a recurring billing feature in your ERP system and any workflow to manage contract renewals?
We are using a recurring billing feature based on contract, but then having collection issues without the next annual PO being issued and quoted on invoice. Then the question becomes "do you have valid revenue you can recognize if collection is not assured and/or if the Company is willing to negotiate annually"??
Collection is not assured for services being offered one, two or more years down the road. Unless you are delivering your services up front and collecting for them up front I don't think this would be revenue you could take up front. Rather you would have to recognize ratably based on delivery or whatever the contract stipulates over the life of your agreement. Unless you can convince the customer to pay up front, they will likely use their own process of getting annual POs approved for the payments in annual installments.
So I think what you have is a multi-year booking, insofar as you have a multi-year term of an agreeement with a customer, but it's not revenue until collection is likely and services are delivered. Or maybe I'm just missing something here...
We are a SaaS company and we require a PO for all large orders even if it is a multi-year contract. We try to get a PO that covers all the years.
The primary reason is that this facilitates payments as most large companies cannot generate a payment without a PO.
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