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Example documentationExample: Sales Contract with Advance and Minimum Guarantee

 

You want to represent license sales contracts, which place guaranteed advances and a minimum guarantee in a dependent relationship with one another. Advances and minimum guarantees are to be recouped against an exploitation-dependent license fee.

Representation in the License Sales Contract

You transfer the film rights to Film A to the licensee and agree that you will receive 10% of the box office takings. The licensee is to pay you a two-level guaranteed advance. The first payment is $2000, and the second payment is $1500. You also define a minimum guarantee amount of $10,000, which license revenues that result from this contractual relationship must reach as a minimum.

Several advances and minimum guarantees can be combined as a group in license contracts, by creating one of these items as a main item and the others as sub-items. This is relevant in cases in which several advance and minimum guarantee totals are to be recouped against the same royalties item.

The advance group is referenced from the royalties item.

  1. Maintain advance: When creating an item in the license sales contract, you can use item category IVA1 (IPM sales guaranteed advance), or a similar item category that you define (in SAP Customizing) to represent the guaranteed advance.

    • You record the first guaranteed advance of $2000 with condition type 17V5 (advance IR) or a similar condition type that you define, in this item.

      You also create a second item with item category IVA1 as a sub-item for the first advance.

    • You record the second guaranteed advance of $1500 with condition type 17V5 (advance IR), which is made at a later point, in this item.

    Note Note

    Preferably, you should use item category IVA5 (IPM AP with Install.) for milestones or installments, so that you do not have to create 2 separate items.

    End of the note.

    The system uses item category IVA2 (IPM sales final invoice guaranteed advance) to create a final invoice item for guaranteed advances when the contract is saved. This ensures that any remaining values are cleaned in CRM Billing at the end of the contract runtime and that corresponding FI postings are triggered.

  2. Maintain minimum guarantee amount: Record the minimum guarantee amount of $10,000 using item category IVG1 (IPM sales minimum guaranteed amount) from the Customizing settings, or a similar item category that you define. Create this item as a sub-item for the first advance. Record the amount of 10,000 as a condition with condition type 17G5 (guaranteed license total IR) from the Customizing settings, or a similar condition type that you define.

  3. Maintain rights and variable royalties: Record the confirmation-relevant rights and royalties item as a main item with item category IVM2 (IPM sales rights and royalties item with confirmation) or a similar item category that you define.

    • Restrict the right by content within this item.

    • Define a royalty rate (price agreement) of 10% within the item.

    • Create a reference to the advance group within this item using the Advance Reference field.

Result

When the items are released and the contract is saved, data for the advance and minimum guarantee is transferred to billing. Billing request items for the variable license revenues are only transferred to billing once confirmation is complete.

Both down payments with a total value of $3500 are made by the licensee.

You receive confirmation data from the licensee throughout the duration of the contract and determine the exploitation-dependent license fee on the basis of this data. During billing of the billing request items for the rights and royalties item, these exploitation-dependent license revenues are recouped against the advance.

Settlement of the minimum guarantee item takes place at the end of the agreed contract validity period. Royalties payments made are compared with the minimum total here: The box office takings for the film were $85,000 in total. You have already received a proportional amount of $8500 including the advance.

In this example, the payments made to you were $1500 less than the minimum guarantee. The licensee must transfer this amount to you.