Managing your Equipment Servicing &

Rentals with Oracle Contracts

Ian Monaghan

Claremont is a trading name of Premiertec Consulting Ltd

 Managing your Equipment Servicing & Rentals with Oracle Contracts
Ian Monaghan

 
 

Managing your Equipment Servicing & Rentals with Oracle Contracts

INTRODUCTION

The service provider industry has become increasingly focused in recent years on delivering an
optimum level of service to the customer whilst ensuring that costs of dealing with customer
enquiries, managing customer entitlement information and generating service related bills is
minimized . At the same time, where service providers lease their equipment, providers have found
there has been a strong emphasis placed on delivering operational efficiencies in an increasingly
competitive equipment leasing industry.

One of the key factors many service providers struggle with, whether providing after sales service or
when leasing their equipment out to Customers, is the development of systems which are capable of
handling customer service requests in an efficient manner against their Service Level Agreements,
whilst ensuring they are able to manage the updates and renewals of their lease and service
agreements and maintain accurate billing.

This whitepaper and associated presentation is intended to explain to users how the current Oracle
Contracts functionality can be integrated to help manage a service provider’s equipment service and
leasing operations.

The presentation focuses on the key Oracle contracts modules associated with the management of
Service and Rental Agreements, namely Oracle Service Contracts and Oracle Lease Management.
Based on extensive implementation experience, the presentation looks to explain how the core
functionality provided by the two modules can be used to facilitate the servicing, billing, contract
maintenance, termination and renewals processes within the industry. The presentation moves on to
discuss the best practice implementation approach for the two modules, including possible
extensions that may be need as well as highlighting specific ‘pain points’ encountered with their
implementation.

BACKGROUND & DEFINITIONS

EQUIPMENT SERVICE PROVIDERS (ESP)

Are those organizations that provide Equipment and associated servicing of Equipment to Third
Party customers. Equipment Service Providers may be either the primary manufacturers of the
Equipment i.e. Ricoh and Canon in the Photocopier industry who provide an after-sales service to
Customers. Alternatively they may be distributors of the Equipment, purchasing Equipment from
primary Equipment vendors and then re-selling the equipment to Customers with the provision of
an accompanying Service i.e. Telecoms Providers

SERVICE LEVEL AGREEMENTS

In most instances, whether a Direct Manufacturer Service Provider or Distributor Service Provider,
the After-Sales Service of any equipment is determined by an Agreement between the Equipment
Provider and the end Customer. This agreement normally takes the form of a Service Level
Agreement (SLA). SLA’s detail the level of Service agreed to be provided by the Service Provider to
the end Customer. Such SLA agreements detail:
• The Equipment that is covered by the Service Level Agreement

 
 
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• The Response Times within which a Service Provider should provide Service to the
Customer following the Request for Service by the Customer
• Details of the Coverage Times during the Day/Week/Month that Service can be provided to
the Customer.
• The proportion of Labour, Materials and Expense charges to be paid by the Customer versus
the Service Provider should a Service Request be requested by the Customer based on the
Time, Materials and Expenses incurred by the Engineer in rectifying the problem
The level of Service which the Customer can expect from the Service Provider when raising a
Service Request against a Customer Equipment is known as a Customer’s Entitlement.

SERVICE CONTRACTS

Customer Entitlements and their associated Service Level Agreements are defined in a Contract
between the Customer Service Provider and the Customer. Often known as a Service Contract, this
Contractual Agreement, as well as defining the Customer’s Service Entitlement will also define the
regular Service Charge that is charged by the Service Provider to the Customer in relation to the
level of Service being provided

LEASE CONTRACTS

In a number of cases, the Equipment Provider rather than selling the Equipment to the end
Customer, may instead lease the Equipment to the end Customer whilst still providing service
against the leased Customer Equipment. This form of lease agreement with the Customer renting
Equipment from the Equipment Service Provider is often referred to as a Lease Contract.

Leasing equipment to a Customer rather than selling the Equipment is advantageous to both
Equipment Service Providers and to Customers. For the Equipment Service Provider, acting as the
‘Lessor’ in the Contract it acts as another sales tool to sell equipment to Customers (or ‘Lessees’, as
they are referred to in a Lease Contract).

ADVANTAGES OF LEASING EQUIPMENT

Customers are often more keen to lease equipment from an Equipment Service provider than buy
Equipment. There are a number of key advantages of leasing equipment for the Customer.
These include the following:
• Leasing improves a Customers cash flow in that it frees up cash - Equipment leases rarely
require down payments.
• Leases are easier for Customers to finance than purchases - Before extending a capital
equipment loan, banks will usually want to see two to three years of financial records - which
most new companies do not have. Leasing companies, on the other hand, usually require only
six months to a year of credit history before approving a furniture or office equipment lease.
• Leasing makes it easier for Customers to keep pace with technology - Leasing is especially
attractive if Customers rely upon cutting-edge technology such as the latest computers,
communications devices or other equipment. A series of short-term leases will cost
Customers less than buying new equipment every couple of years.
• Leasing has balance sheet benefits - Customers may be able to exclude some leased assets
and related obligations from their balance sheet. Such moves might improve financial
indicators of the Customer’s debt-to-equity ratio or earnings-to-fixed-assets ratio.

 
 
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For the Equipment Service Provider (or Lessor), there are additional advantages other than just
being able to Lease additional Equipment to Customers:

• High Value guaranteed incomes – The Income associated with an Equipment Rental is often
much higher than the income associated with Equipment Servicing and may often far exceed
the income from the sale of an equipment. In addition, with the Customer signing a Lease
Contract to pay the Rental, then this income can be guaranteed and as such can be sold on to
Investors (see ‘Investor Margins’ below).
• Investor Margins - The Lessor, in leasing equipment with a guaranteed income, is often able
to sell this income to an Investor as part of a wider Investor Agreement to an Investor Party.
The Investor purchases the income from a series of Lease Contracts, with the Equipment
Service Provider paying a regular Cash Sum to the Investor. The Equipment Service Provider
makes a further profit by taking a margin on this agreement with the Investor.
• Tax Benefits - In certain countries, such as the United States, Leasing equipment has tax
advantages to the Lessor in that Rental payments are 100% tax deductible because they are
treated purely as an operating. Rentals do not appear on the balance sheet, therefore there is
no contingent liability. (Operating Leases are the type of lease classified and accounted for by a
lessee as a non-purchase, as opposed to Sales Type Leases where the lease is classified as a
Purchase).

Key Objectives for an Equipment Service Provider

Equipment Service Providers have a number of key objectives in running their businesses. It is vital
that any system solution designed for the Equipment Service Provider industry is able to meet these
key objectives. The objectives can be categorized as follows:

The ability to Manage Customer Service Requests against agreed consistent SLAs

In a Service orientated industry such as the Equipment Service Provider industry, the respond-to-fix
time against agreed Customer Service Level Agreements is critical. Failure to fix customer
equipment within an agreed timeframe may result in penalties being incurred against the Equipment
Service Provider which may be deducted from subsequent bills. In addition, such a reduction in the
level of Service agreed with the Customer can result in the Customer cancelling the Service
Contract with the Equipment Service Provider with a resulting reduction in any associated revenue
streams. It is therefore critical for the Equipment Service Provider that every effort is made to
ensure that Customer Equipment Fixes are performed within agreed times defined in the Customer
SLA and that the authoring of such Service Level Agreements is accurate and reflects correctly the
agreement with the Customer.

Any system adopted by an Equipment Service Provider must therefore be able to ensure that
Customer Service Agreements are authored in an accurate and consistent manner, such that
Customer Service Requests can be dealt with within the agreed timescales. Such solutions must
ensure that resources with the correct skills are allocated quickly to the Customer to be able to
resolve the issue within the agreed timeframe.

The need to generate accurate, timely and flexible Billing

Billing of Equipment Service, Usage, Rental and other charges such as Insurance is critical to the
Equipment Service Provider industry. Where Equipment Service Providers are billing usage based
contracts, the calculation of such charges can be complex and, with the high volumes of contracts

 
 
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often including usage, it is important that any system solution avoid high customer query volumes by
providing accurate and timely billing.

In addition, any billing to the Customer needs to be able to accommodate any ad-hoc charges that
may arise during the course of the contract, such as Audit, Installation or Environmental charges.
For the billing of Equipment Lease Contracts, any solution needs to ensure that the Equipment
Service Provider covers the cost of the machine being leased. As the charge values presented to the
Customer are likely to be much higher than those on Service Contracts, it is vital that the values
presented to the Customer are correct.

Further, where Rental Incomes have been sold to Investors, any system solution needs to ensure
that the Rental Incomes are collected in a timely fashion to cover any agreed payments to Investors.
Delays may result in Cash flow issues for the Equipment Service Provider in them having to pay
monies to the Investor without having collected monies from Customers.

Visibility of the Customer Equipment Installed Base

It is important to the Equipment Service Provider that the system provides a single source of truth
of the equipment being serviced, its location, Service History and any associated meterage. Such
information is used to despatch Engineers dealing with Service Requests to the correct location and
provide engineers arriving on Customer site with a full Service History of the machine at fault.
Meterage information contained in the Customer Equipment Installed Base is also used to validate
that subsequent Customer meter reads are correct. Meter Reads may also be used for estimation
calculation purposes in the event that the customer fails to provide a valid read.

Long Term Retention of Contracts to generate Cash flow

Equipment Service Providers generate the bulk of their revenue from the charges raised against
Customers in providing Service. In order to retain these Customer contracts, the Service Provider
must ensure that they have systems that capture Customer Service Requests and respond to these
issues within a timely manner. Failure to do so may result in the Customer terminating their Service
Contracts and approaching a competitor to request alternative equipment and service.

On the Lease Contract side, any solution needs to enforce Customer penalties for terminating their
Lease Contract Agreements with the Equipment Service Provider. With Customers signing up to pay
a Contracted Rental for the specific duration of the Lease Contract and the Customer wishing to
terminate the lease contract early in the contracted term , the system needs to be able to generate a
Termination Quote to the Customer whose value covers off any remaining Contract Obligation
associated with the Rental agreement. Such Termination penalties also act to discourage
competitors from buying-out the contract of a Customer and replacing the Customers equipment
with their own.

Manage Customer Enquiries efficiently and effectively

An important part of any Equipment Service Providers solution is the ability to be able to handle
Customer Enquiries efficiently. Customer Enquiries may include the raising of new Service Requests
which need to be dealt with within the agreed Service Level Agreement timeframes. The ability to
capture the Service Request information and allocate the issue within the agreed SLA timeframe for
fix is therefore imperative for any solution.

 
 
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Further, where Customers are inquiring about their contractual agreements and any associated bills,
then the ability to access this information in a timely manner is important to maintain a good
relationship with the Customer.

Manage Sales of Contract Income to Investors

Where Equipment Service Providers wish to sell off some of their guaranteed Rental Income to
Investors, then they need the ability to be able to initiate an Investor Agreement with a 3rd Party
Investor. Such Investor Agreements combine the income from batches of contracts. The income
from these contracts is sold at an agreed value to the Investor at the start of the Investor
Agreement and then the agreed Investor Disbursement is passed to the Investor for the duration of
the agreement. Such a process not only helps to maintain sufficient funds with the Equipment Service
Provider to initiate further Customer deals, but also allows the Equipment Service Provider to profit
from the Investor Agreements themselves.

Accurate Accounting

Critical to any Equipment Service Provider solution is the ability to account for the Income received
through any Service or Lease Contract. From a Service Contract accounting perspective, the
Equipment Service Provider needs to be able to ensure that they can allocate the Service and any
Usage revenues to the correct Equipment and Service Offering in a dynamic fashion.
In relation to Lease Contracts, the Equipment Service Provider needs to be able to view their
accounting at a contract level to be able to determine the profitability or yield of a contract and also
assess any loss provisions needing to be made on contracts in debt.

Oracle Contracts Modules used to assist Equipment Service Providers

In order to meet the requirements of the Equipment Service Provider Industry, the Oracle E-
Business Suite provides a range of Service and Contracts Modules which provide functionality to
meet these Business Process areas.

In relation to the Service aspects of any solution, the Oracle Service Modules including Oracle Tele-
service, Oracle Field Service and Oracle Mobile Field Service help to capture Customer issues and
direct a skilled engineer to the Customer site to fix the issue.

In relation to the Customer Agreement aspects of the solution, such as ensuring Customer Issues
are dealt with within agreed Service Level Agreement response times and that accurate billing is
generated to the Customer, the Oracle E-Business Suite provides two key modules to assist the
Equipment Service Provider industry.

These are namely:

Oracle Service Contracts (OKS) – This module is used to manage Customer Service Level
Agreements which have been agreed between the Customer and the Equipment Service Provider.
Such Agreements can be defined as Warranties (Free of Charge Service Level Agreements) or
Extended Warranties (Service Level Agreements agreed with the Customer with an associated
charge). A detailed explanation of the core functionality contained within the Oracle Service
Contracts module is contained in the section below.
Oracle Lease Management (OKL) – This module is used to manage the Lease Agreements
which have been agreed between the Customer Service Provider (acting as the Lessor on the

 
 
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contract) and the Customer (acting as the Lessee on the contract). Such Agreements always contain
details of the Equipment being charged and the associated Equipment Rental. A detailed explanation
of the core functionality contained within the Oracle Lease Management module is contained in the
section below.

These Oracle Contracts modules fall within a wider suite of Oracle E-Business Contracts which also
includes:
 Oracle Sales Contracts (OKO) - A module is used to negotiate and manage
contractual relationships with your customers.
 Oracle Procurement Contracts (OKP) – A module which helps to create and
enforce better purchasing contracts with suppliers
 Oracle Project Contracts (OKE) –Designed for those companies that operate in a
project driven environment. This module allows you to efficiently manage your projects
within the defined contracts specified.

Meeting the Objectives of the Equipment Service Provider using Oracle Contracts

Looking at the functionality contained within the Oracle Service Contracts and Oracle Lease
Management modules in more detail, it becomes clear that the two modules provide nearly all of the
key functionality needed to manage the Equipment Service Provider’s Customer Service and Leasing
Agreement processes. Unfortunately, as is described below, the functionality needed by the
Equipment Service Provider industry is spread between the two modules, with each module having a
number of limitations, when considered independently, in meeting the industry requirements:

ORACLE SERVICE CONTRACTS - CORE FUNCTIONALITY

Comprehensive and Accurate Usage Based Billing

Equipment Service Providers need to be able to bill their customers based on the amount of usage
made against their equipment. The integration with the Install Base module, allows the Service
Contract billing to be able to bill the customer based either on an actual meter reading, or if the
contract allows, be based on an estimated read or even a minimum threshold quantity for that billing
period.

The usage based billing functionality allows Equipment Service Providers to record meter readings
for each of their equipments separate counters. This functionality extends such that if a reading is
not available for a specific period then the system will automatically calculate an estimated read
based on a pre-defined calculation method. Each counter on the equipment can be configured with a
different click price. e.g. for the photo copier industry the black and white counter can be charged at
2p per page and the colour counter be charged at 4p per page. Further, this pricing information is
interfaced to the Receivables module and can then be included on the customers invoice to mitigate
any invoicing queries.

Service Billing

As standard the Service Contract module integrates with the Oracle Advanced Pricing module in
order to determine the contractual price of the service being charged to Customers. This ensures
that the pricing of Service to the Customer is both accurate and controlled within an agreed pricing
structure, ensuring profitability to the Equipment Service Provider. Functionality within the module
provides the ability to cover for the extent of Service being applied against the Customer Base

 
 
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allowing Service to be either billed as a fixed price per billing period, or if required, as a percentage
of the covered good. Using the functionality within Advanced Pricing module, it becomes further
possible to give the customer a surcharge or discount based on pre-defined conditions ensuring that
Customer Service income can be retained in the longer term.

Integrated Entitlement functionality

As was mentioned above, it is critical to the Equipment Service Provider industry that they react to
Customer Service Requests within agreed Service Level Agreement timescales. The Oracle Service
Contracts functionality ensures that as part of the contract authoring process the customer’s
entitlement offerings can be defined against the Service provision being defined in the Contract.
These entitlement details can be stored to hold information such as agreed times of coverage,
resolution times, coverage breaks and for billing purposes, the labour rates being charged.
Integration with the E-Business Centre, Service and Depot Repair modules, means that should a
service request be placed by a customer via a call centre, service engineer or warehouse, the system
will be able to derive the exact customers contractual entitlements for its covered products
ensuring that response times are managed correctly and any additional charges are automatically
invoiced to the customer.

Contract Quality Assurance

Equipment Service Providers Service Contracts need the flexibility to be able to author contracts
with a variety of Terms and Conditions including variable Service Level Agreements. In order to
author these Contracts in an accurate manner which reflects the nature of the agreement with the
Customer, Quality Assurance functionality is available which performs checks on the Contract
following its authoring.
This ensures that all the necessary and agreed elements are defined in the Service Contract before it
is activated. This functionality becomes particularly useful when the Service Provider is both
Servicing and Leasing the equipment to the Customer. Here the functionality can ensure that both
the Lease and Service contracts have the same pertinent attributes e.g. Customer Bill- To Address,
and receipt methods etc.
Further, should any of these details be amended during the contracts lifecycle, then the QA
Checkers will ensure that the data held in the Service Contract specific to the agreement with the
Customer remains accurate.

SCREEN DUMP

Fig 1: Service Contracts Quality Assurance (QA) screen

Renewal Functionality

The renewal of service contracts is a good opportunity for service providers to ensure long term
retention of Customer Contracts to ensure cash flow. Standard functionality exists within the
Service Contracts module to actively renew the Contract at the end of its initial term.

Based on our implementation experience, it should be noted that there are disadvantages in using this
functionality in that it creates a new contract in the system and will not automatically create the billing
schedule should the renewal period not equal the original term of the contract. Creating more than
one contract for essentially the same deal impacts the maintenance and inquiry overhead. The
approach that has therefore been implemented at a number of clients is to enhance the contract

 
 
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extension functionality, so that the contract can be automatically extended, a defined number of days
before the contracts end date. This ensures that the Equipment Service Provider still only retains the
original contract in the system, and that the billing schedule is automatically created even when the
renewal term is different to the original contract.

ORACLE SERVICE CONTRACTS - LIMITATIONS

Unfortunately from an Equipment Service Providers perspective, there are a number of limitations
within the standard Oracle Service Contracts functionality which mean that it falls short of being
able to meet, as standard, all of the objectives of the industry. These are namely:

Limited Enquiry Functionality

In order to achieve an efficient process for dealing with customer inquiries, users need to be
able to find contract information easily, by searching on a variety of parameters such as Customer
Name, Invoice Number and most importantly the Serial no of the equipment held in the Contract.
As standard the search capabilities within the Service Contracts modules does not cater for any of
these requirements particularly well and so alternative approaches to Customer inquiries are
needed.

As is described in the ‘Solution for the Equipment Service Provider industry’ section below, many clients
wish to create a custom inquiry screen to overcome these limitations. This can be then used as the
main central hub for all contract inquiries whether they are for the Service or Lease contracts. Such a
custom search screen allows clients to be able to enter common search parameters such as Serial
Number, Customer Name, Invoice Number and Contract Number and then retrieve all corresponding
Service and Lease contract details that match. Such Custom Search Forms can also be used to quickly
drill down into these selected contracts, Install base Records and even Invoice Details making sure that
the time the user needs to resolve the issue is kept to a minimum.

Fig 2: An example Custom Contract Search Inquiry screen

SCREEN DUMP

No Non-Machine Related Charging

There is currently no ability within the Service Contracts module to be able to create ad-hoc
charges independent of a machine such as Consultancy and Audit Fees. The current functionality
prescribes that any charge, whether it is Service or Usage related, must be associated with a
machine.
Alternative solutions are therefore needed if the Equipment Service Provider wishes to be able to
provide ad-hoc non-machine related charges to the Customer from the Contractual Agreement.

As is described below, standard functionality in the Oracle Lease Management module can be used to
accommodate for this Service Contract limitation.

No Termination Quote Functionality

In order to ‘encourage’ the long term retention of a Customer Contract, many Service Providers
wish to introduce penalties against the Customer should they wish to terminate their Service
Contracts early.

 
 
 Managing your Equipment Servicing & Rentals with Oracle Contracts
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Unfortunately, the Oracle Service Contracts module does not provide functionality to be able to
generate Penalty Termination Quotes to the Customer should they request an early Contract
Termination. An alternative solution is therefore necessary to be able to meet such requirements.

As is described below, standard functionality in the Oracle Lease Management module can be used to
accommodate for this Service Contract limitation.

ORACLE LEASE MANAGEMENT - CORE FUNCTIONALITY

Rental Based Billing

Flexibility within the Oracle Lease Management module allows Equipment Service Providers to set
up very flexible payment schedules for the rental of the assets to their Customers. Such flexibility
ensures that Customer Payment Schedules can be made attractive to Customers ensuring their long
term retention. Rental Charges can be made to be either in advance or in arrears on a monthly,
quarterly, bi-annual and annual frequency. Further Stub period functionality allows the Equipment
Service Provider to move the billing cycles so that they align to specific days such as calendar
quarters

SCREEN DUMP

Fig 3: Flexible Rental Billing Schedules in Lease Management

Flexible Fees Based Billing

Equipment Service Providers often wish to bill the Customer for items that are not specific to a
particular asset, but relate to the contract as a whole. A good example is Contract Administration
Charges. This is usually a one off fee that is negotiated at the start of the contract and can be billed
as soon as the contract has been booked.
Such fees based, non-machine related billing functionality is not available in the Service Contracts
module, but does exist in the Lease Management module. Fee Type functionality within the Lease
module ensures that capitalized and expense based non machine related fee charges can be held in
the contract and be billed to the Customer for the duration of the Contract. In addition, where the
contract is associated with a third party Vendor Agreement, fees can be passed through to the
Vendor. Fees can be defined to be included or excluded from the Internal Rate of Return calculation
for the Contract.

Termination Penalty Quotes

In order to retain Customer Contracts, Equipment Service Providers are keen to dissuade Cus-
tomers from terminating lease contracts or lease contract equipment early. As such, they need the
ability to able to generate a termination penalty should the Customer terminate the lease contract
prior to the end of the initial agreed contract term.

The termination quote functionality contained in Oracle Lease Management allows the Equipment
Service Provider to create a termination quote, review the quote amount and amend the quote
value through the use of discount functionality, get the quote approved internally and
issue to the customer.

 
 
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Quote Type selection determines how the asset or contract is terminated – either with or without
Customer Purchase. Standard functionality allows for Complex calculation formulae to be developed
specific to each client’s requirements.

Once the Customer has finally approved the quote, a workflow will run all the necessary back-
ground processes, from creating the termination invoice details to automatically creating the
accounting transactions required to clear down all the relevant clearing accounts and finally,
terminating the contract.

Fig 4: A Customer Termination Quote in Lease Management

SCREEN DUMP

Contract Quality Assurance

As mentioned above, Equipment Service Providers need to ensure they are authoring Customer
agreements consistently and correctly. As with Oracle Service Contracts, Oracle Lease Management
provides a standard Quality Assurance checker to validate that all the relevant fields have been
entered on the contract, and that the payment schedule has been defined within the effectivity dates
of the contract. Additional client specific validations can easily be built such as ensuring that all the
assets have got the same billing schedules on the contract and that these agree with any billing
schedules held on the associated service contracts.

Visibility of Equipment Repository

The Lease Management Module is able to create assets on its contracts using Install Base records
that were either previously created by the Order Management shipping process or manually created.
Linking the Lease Contract Equipment records with the Oracle Installed Base ensures that the
Equipment Service Provider has a single point of Equipment Reference in the Oracle Installed Base
between Oracle Lease Management, Oracle Service Contracts and the Oracle Installed Base.

Investor Funding

It is important to Equipment Service Providers, especially those involved in Leasing Equipment, that
they maintain a healthy cash balance and cash flow. In order to improve a lessor’s cash flow, it is
common for lessor to want to sell off some of their lease contracts and the associated revenue
streams to Investors.

The Lease management module has a full set of functionality to allow an Equipment Service Provider
to be able to set up an Investor Pool identifying all the contracts that they wish to sell off, and then
to create an Investor Agreement which determines the terms and conditions under which investors
participate. Upon activating the Investor agreement it is then possible to automatically bill the
investor for the Investors Stake (or the amount agreed with the Investor for him to purchase the
Contract’s future income).
Accounting functionality within the Lease Management module creates all the necessary accounting
associated with the transaction. Then, as rental invoices are issued to the customer, or cash
received, the investor is paid via the modules disbursement functionality.

Accurate Accounting

 
 
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Since the introduction of the new International Accounting Standards (IAS) and International Fi-
nancial Reporting Standard (IFRS), the requirements for transactions of a Lease contract within a
Lease organization need to be far more extensive and granular. Additionally with pan European
implementations, the accounting for lease transactions must comply with accounting principles and
standards that vary from country to country. The Oracle Lease Management module offers a very
powerful accounting engine using comprehensive formula based functionality which can automatically
create the proper accounting for each of the financial products that are being offered throughout the
lifecycle of the Lease e.g. Booking, In-Life billing and accruals through to evergreen, investor and
pass-through accounting
From the point of authoring the Contract, the accounting will automatically create all the necessary
balance sheet accounting. This accounting functionality continues all the way through the contract
lifecycle to the Termination of the Lease Contract, ensuring that the complex accounting needed for
the balance sheet profit and loss of the equipment is handled correctly. The Lease Management
module fully integrates with the e-Business suite modules in order to provide a comprehensive
accounting solution not only for the local GAAP accounting but through the use of Release 12 new
Sub ledger accounting functionality, will fully cater for Multi-GAAP accounting.
Since the

Insurance Information and Billing

It is common practice for Equipment Service Provider leasing equipment that they insist that their
leased equipment is insured. This can either be via a 3rd party insurance policy or the customer may
obtain insurance directly from the lessor. The Lease management functionality allows client’s to
capture the customers 3rd party insurance information or to be able to quote and sell and insurance
policy to the customer. Additionally there is functionality that will allow clients to monitor that the
insurance policy is kept current. If the customer selects the insurance policy from the lessor the
lease management module will automatically bill the customer for the insurance at the same time
that the rental is invoiced.

Unfortunately from an Equipment Service Providers perspective, there are also a number of
limitations within the standard Oracle Lease Management functionality which mean that it falls short
of being able to meet, as standard, all of the objectives of the industry. These are namely:

ORACLE LEASE MANAGEMENT - LIMITATIONS

More Limited Usage Based Billing Functionality

Although incorporating the ability to enter Usage lines into a Lease Contract, the Usage line
functionality in Lease Management is more limited than the Usage line functionality in the Service
Contracts module. For example, there is no functionality to be able to enter different minimums
against different equipments. As a result, any minimum values entered are applied equally across all
equipments.

Further there is no ability to be able to enter Price Break information against each Usage Line as can
be done in Service Contracts. Instead, the Price Break information is applied against the item from
the standard Oracle Price Lists.

As such, in most client implementations involving a Lease Management and Service Contracts
implementations, the adopted solution has always favoured the creation of Usage based billing

 
 
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through the Oracle Service Contracts module with the charges being consolidated with any Rental
charges on the Lease Contract before being passed to the Accounts Receivable module for billing.

Renewals Functionality

The standard functionality in the Lease Management module when renewing a contract past its initial
contract term is to change the status of the contract to an ‘Evergreen’ status. The Lease Contract
continues to bill for the same Rental as previously indefinitely.

In our implementation experience, we have found that the standard Renewals process of passing
Contracts at the end of their initial term into an ‘Evergreen’ status to be restrictive. As a result, in most
client implementations we have developed a number of extensions including:

Updates to the Evergreen Rental at Renewal - There is currently no ability to amend

the Evergreen Rent Stream amount. Usually, the Service Provider needs the ability to amend
the stream amount by a % factor. It is common to want to amend the amount the customer
pays during its evergreen period as they have already paid for the machine during its primary
period and so the margins during the evergreen period allow for some flexibility as to what
can be charged.

Evergreen Rent Accrual Stream Accounting - From an accounting perspective there is

no functionality to be able to create the Evergreen Rent Accrual Streams.

Billing Evergreen Rental prior to Renewal - The Evergreen functionality only creates the
next billable stream after the first stream was billed. Whereas we need the ability to create
months of Evergreen Rent streams in advance for VAT schedule functionality and price
increase functionality.

Evergreen Rental and Stub Billing Periods - The Evergreen Rent stream cre ation
process does not take account of situations where the contract has a stub period (period at
the start and end of the contract which does not fall into the standard billing frequency for the
contract).In these situations, we have adopted the approach of making sure that the 1st
Evergreen Rent stream is created one billing period after the last full rent invoice was sent and
not from the end date of the contract. This ensures that the evergreen invoices are sent out
using the same billing cycle as the rent.

A SOLUTION FOR THE EQUIPMENT SERVICE PROVIDER INDUSTRY

Solution Background

Claremont quickly recognized that there was a need for an Oracle E-Business Suite solution which
could be used by the Equipment Service Provider industry to meet their core Service Contract and
Leasing requirements. Experience at a large number of client implementations helped identify the
areas where functionality in the Oracle Service Contracts and Oracle Lease Management modules
could be used and combined with a limited number of extensions to provide a solution for the
industry.

As a result, a solution approach was adopted which combines the best functionality of the Oracle
Service Contracts module with the best functionality offered by the Oracle Lease Management
module. The approach is predominantly based on standard functionality throughout, except around

 
 
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the Shipping and Asset Returns process areas where additional integration has been built to
integrate the solution around the Order Management Shipping and Returns process areas.

The process described below explains the general solution within the end-to-end business process
associated with the creation of Lease and Service Contracts within the industry. Clearly, the solution
implemented varies from client to client based on individual requirements, but we have tried to
detail all the aspects of the solution variants that have already been implemented throughout various
Customer sites to give the reader an understanding of the capabilities of the solution.

Fig 5: A Combined OKL and OKS Solution for the Equipment Service Provider Industry

SCREEN DUMP

The Solution in Detail

Initiating a Customer Deal

The Equipment Contract process usually begins with a Salesperson signing a deal with the Customer
to sell or lease equipment to the Customer. Such deals will normally detail the type of Equipment
being ordered from the Equipment Service Provider, together with details of any Service Level
Agreement duration, entitlement and associated pricing agreed with the Customer. Where the
Customer is looking to Lease the equipment from the Equipment Service Provider then the
Salesperson will also have agreed the duration of any Lease Contract with the Customer, the level of
Rental Charges and any other charges to be made through the Lease Contract such as Insurance and
Ad-Hoc Fees. The Salesperson is also likely to have confirmed with his head office that the
profitability of the Lease and associated Service Contract meets sufficient margins for the Equipment
Service Provider.

Once the equipment and any associated Contracts have been agreed with the Customer, then an
Order is placed with the Equipment Service Provider for the Equipment. Such an Order is normally
placed by the Salesperson who has done the deal with the Customer and includes the full equipment
configuration and any options needed by the Customer.

In our experience, where clients use the Oracle E-Business Suite, the Oracle Telesales or Order
Management modules are mainly used to capture order information. Alternatively, many clients prefer
to retain their front end third party sales systems and integrate the authoring of the Sales Order and
Contracts from this sales system. In the majority of these cases, clients wish to be in a position where
the Sales and Contract information detailed by the Salesperson can be entered into this front end
sales system and then automatically initiates the creation of an Order to the Order Management
system with the contract data being held in a series of Custom Contract staging tables until the
contract is ready to be authored and activated.

Equipment Shipping and Installation

Once Equipment information has been entered into the Oracle Order Management system, then the
Equipment is shipped via the standard Order Management processes.

In our experience, clients are often keen to minimize input errors and ensure that the business
processes are handled as efficiently as possible, clients are often keen to automate the equipment
shipping and installation processes. In many cases, we have therefore introduced custom events during

 
 
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the shipping process to trigger the creation of a Service Request used by the Installer to perform the
installation of the Machines.

The Installer performs the installation of the equipment, debriefs the installation Service Request and
updates the Oracle Installed Base to say that the Equipment has been installed.

Authoring the Lease and Service Contracts

Once Equipment associated with a Contract has been installed, then the Equipment Service Provider
is keen to go ahead and author the associated Lease and Service Contracts relating to the
Equipment.

Again, in our experience, we have found that Clients are keen to author their Lease and Service
Contracts as quickly as possible following the installation of the equipment. The
installation of the equipment is used to trigger a call to author the Contract records held in the
Custom Contracts Tables

Where clients do not feel it is necessary to automate this process, Custom Contract Authoring reports
have been developed which include the contract authoring information needed to author the Lease
and Service Contracts that were captured during the Order entry process. This report includes
elements such as the Contract Customer Details, nature of the contract needing to be authored i.e.
lease and/or service contract, Contract Duration, Equipment Details and Billing Amounts.

Where Custom Contract Staging Tables have been developed to hold the contract data, then the
Lease and Service Contracts are authored automatically via a custom call to the Contract staging
tables to author the Lease and Service Contracts via the Contract Authoring Open Interfaces.

To ensure that the Contracts authored are standardized and contain the core terms and conditions
needed by the Business, we have tended to define the equipment contract base into a series of
contract types, including:

• Sales Type Leases versus Operating Leases

• Advanced versus Arrears Contracts
• Funded versus Non-Funded Contracts

Against each of these Contract Types, standard Contract Templates have been defined which, not only
hold the Terms and Conditions of such contracts but also any associated accounting. To further ensure
that the contract data entered is consistent, the Contract Authoring process is able to call the Contract
Quality Assurance tests on the contract.

Where Contracts are being manually authored based on an Authoring Report, the same Contract
Authoring and Quality Assurance tests can be run defined to ensure consistency of Contract data
entry.

The following Lease Contract and Service Contract Data elements are able to be created in the
Customer Contracts:

Lease Contract Data Entry Elements

The Lease Contract is authored with the following key information:

 
 
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Contract Number – Based on an automated sequence or manually determined

Customer Information - details of Customer, Customer Accounts and Billing addresses

Equipment Information – details of the Equipment being leased through the Contract
including details of the Installed Base and Fixed Asset Locations and the associated Rental
Charges. This equipment information is referenced against the Oracle Installed Base.

Fee Line information - details of any ad-hoc fees being entered on the contract and their
associated Charges

Insurance Line information – details of any insurance charges or third party insurance
policies provided by the customer which cover the equipment on the contract

Service Contract Data Entry Elements

The Service Contract is authored with the following key information:

Contract Number – Where the Contract being authored is OKS only, then this is based on
an automated sequence or manually determined. Where the Contract being authored is a
joint OKL-OKS Contract then the Contract Number should adopts the same numeric prefix
as the associated OKL contract.

Customer Information - Customer Details, Customer Accounts & Billing addresses

Equipment Information – Equipment details being serviced through the Contract. This
equipment information is referenced against the Oracle Installed Base. Where an OKS and
OKL Contract is being created against the Equipment, then the same equipment in the Oracle
Installed Base is referenced in both contracts.

Usage Line Information – details of the Usage Charge Line types being charged on the
contract including Price Breaks and Minimum Quantity information. The Usage Line Price
Breaks are applied against Meter Readings received from the Customer. Meter Readings may
be validated prior to being imported into the OKS Contract to determine the Usage Billing.
Where invalid meter reads or no meter reads are received from the Customer, then an
estimation program can be used.

Service Line Information – details of the Service Types being charged on the contract.
Separate Service Charge Types can be allocated to separate Revenue streams for accounting
purposes. NB. The OKS Contract is linked to the OKL Contract via the Service Line on the
OKL Contract referencing the Service Line on the OKS Contract.

Entitlement Template – details of the Coverage Times, Response Times, Agreed Resolu-
tion Times and Customer Billing Entitlements for Expense, Labour and Material associated
with the Service being provided. Entitlement information held on the Service Contract is used
to determine the Response and Resolution Times to be allocated to Service Requests raised
against the equipment covered under the Service Contract. A Customer raises a Service
Request requesting Service on their machine. The Entitlement Template held against the
Equipment in the Service Contract is immediately applied against the Service Request. Based

 
 
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on the Entitlement Template, the Service Request is prioritized with Response and Resolution
Times and is therefore able to be allocated to the correct engineer to resolve.

CUSTOMER ENQUIRIES

Customer Enquiries can be handled via standard Forms based Contract Enquiry screens. On the
Lease Contract side, enquiries can be performed against Contract Numbers, Equipment Details
(including Serial Numbers), Customer information and Billing information. Where Service Contracts
have been linked to the Lease Contract, the Lease Centre displays the associated Service Contract
allowing users to navigate into the Service Contract.

On the Service Contract side, enquiry functionality is more limited. Enquiries are still able to be
performed on Contract Numbers and Customer Details.

We have found that to assist in tracing and presenting the associated Lease and Service Contracts
relating to Customer Enquiries, clients have often asked for additional search and enquiry screens to
be developed. These search and enquiry screens normally incorporate fields to allow Clients to search
by Customer, Equipment Number (including Serial Number), Contract Number and Invoice Number.
An example of one of these Search and Enquiry screens that has previously been developed is
contained above in Fig 2 with the Results screen allowing users to navigate quickly down into the
Lease, Service Contract or Equipment record

CONTRACT BILLING

Equipment Service Providers frequently want to charge for fees, services and consumable products
in addition to equipment rent on a single consolidated invoice. Further, some Equipment Service
Providers provide leases and services from different divisions and want to consolidate and submit
these billing charges to the customer on one invoice.

As was mentioned previously, standard functionality exists in Lease Management to combine the
Service and Usage Based Billing from OKS with the Rental and Fees charged from OKL. Further
Invoice Grouping functionality is to be introduced at Release 12 which will allow for the introduction
of invoice grouping rules to consolidate contract billing charges into multi-line invoices or multi-
contract invoices. For example, it may be possible to consolidate rent and property tax on one
invoice, for Rent and consolidate Service and Usage Charges and installation fees on another invoice.

Unless using their own billing systems, Consolidated Invoices are normally issued to the Customer
from the Accounts Receivable module.

CUSTOMER RECEIPTS

Customer Receipts are normally applied either through standard functionality in the Oracle Lease
Management module or via the Receipts functionality in the Accounts Receivable module.

The main differentiator between the two Receipt methods is that Receipt application in OKL en-
sures that Receipts can be either applied at Contract Level or at Invoice Level. Receipts received
through AR Lockbox can also be applied to Contract Invoices through the new OKL Release 12
functionality.

 
 
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We have found that where the Client is applying cash against other sources, other than Contracts
such as Order Management sourced Invoice Charges made from AR, its is recommended a common
Cash Application approach via the AR Cash Receipt functionality, Use of a common approach to apply
receipts ensures that a consistent Cash application procedure can be used between Order
Management sourced invoices and Contracts Invoices.

INVESTOR AGREEMENTS

Once the Equipment Service Provider has received payment from the billing of Rental, Service and
other charges from the Customer then clients who have agreements with Investors are in a position
to be able to pay these agreed sums to the Investor via Investor Agreement pass-through
functionality. Income from a Pool of Contracts is associated with an Investor Agreement and as
monies are received relating to these contracts then a payment is made to the Investor. Payments
normally occur on a monthly basis but can be made to coincide with either the receipt or invoicing
of the Customer.

Although this is mainly handled via the standard functionality, we have found that some clients have
requested that the monies are paid every month to the Investors regardless of whether monies have been
received from Customers. This has required the introduction of a small extension to the Investor
Disbursement stream generation process in Lease Management.

CONTRACT TERMINATIONS

Assuming that the Customer does not wish to Terminate the Contracts early, then the Lease and
Service Contracts are allowed to continue to bill for the duration of their initial contract term.
Depending on what has been agreed with the Customer in the Terms and Conditions of the con-
tract, the Contract may expire at the end of the initial term, or if agreed, then functionality in OKL
and OKS allows the Contract to be continued for an extended period. During this extended period,
the Contract continues to bill to the Customer as an Evergreen contract (OKL) and an
Extended/Renewed Contract (OKS).

If during the initial or extended term, the Customer decides that they wish to terminate the Con-
tracts, then the Contracts can be terminated via an OKL Termination Quote to the Customer. The
Termination Quote details each of the Equipments to be terminated and calculates a Quote value
based on the outstanding Rental Contract obligation that the Customer owes for the remainder of
the Lease contract. If necessary, the outstanding Service obligation for the remainder of the Service
Contract can also be included as part of this Quote Amount.

A Termination Quote document is dispatched to the Customer, who can accept the Quote via
payment against the quote, or, as most customers insist on an invoice before making payment, the
quotes are flagged as accepted by the Equipment Service Provider pre-proceeds and an AR Invoice
automatically dispatched to the Customer for the value of the quote, with the Customer making a
subsequent payment against the Invoice.

For ‘Service Contract-Only’ Contracts, a manual termination request can be made to terminate the
Contract and Contract Equipment. An optional refund can be made to refund any monies received
in advance for the un-used Service periods.

In our implementation experience, most of the clients’ requirements for termination can be handled
using standard functionality. However, we have found that some clients wish to terminate their Lease

 
 
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Contracts only after the payment of the Termination Quote Invoice rather than the standard
functionality of terminating the Contract after the acceptance of the Termination Quote. To
accommodate this requirement, simple changes to the associated workflow process are made to allow
the Termination of the Lease Contract to be deferred until after the payment of the Termination
Quote invoice.

EQUIPMENT RETURNS

Once equipment on the Lease Contract has been terminated, an Asset Return is generated in the
Lease Contract to initiate the collection and return of the Equipment from the Customer site back
into stock. Manual Return Requests are created against the original Shipping Order to generate the
return of the Equipment back into stock. The Return of the goods into stock via an RMA
automatically terminates any Service lines on associated Service Contracts. Usage lines are usually
terminated manually following any final meter reading of equipment once returned into the
warehouse. A final meter reading event can be developed to automate the termination of any usage
lines on the Service Contract.

There is no standard functionality to automate the Return of the Asset coming off Contract back into
Stock. In our experience, a number of clients have requested that the creation of the Order
Management Return is integrated with the Equipment coming off Contract. Scheduled Concurrent
Processes which monitor the Equipment coming off contract and generated an automated Return into
Order Management have therefore been developed for a number of clients.

RE-LEASING EQUIPMENT

As a final optional step, the Asset returned via the Asset Return request can be flagged as ‘Available
for Re-Lease’ allowing it to be referenced on to a new Lease and Service Contract as part of the
Contract Authoring process detailed above.

CONCLUSION

The Equipment Service Provider industry requires a large variety of integrated end-to-end processes
when managing the lifecycle of a Customer Agreement. With the high volumes of Contracts and
associated Equipment managed by such providers, coupled with the need to ensure that the
Customer receives an optimum level of Service within the agreed Service levels, it is critical that any
system based solution targeting the industry provides sufficient functionality to be able to manage
this diverse range of processes, a high degree of automation to minimize the user involvement, and
an extensive level of control and reliability such that the relationships with Customers and other
third parties is not jeopardized.

The solution described above, offering an integrated Oracle Service Contracts/Oracle Lease
Management solution provides the industry with a real approach to managing their Equipment
Contract base. When combined with a limited number of tailored extensions generally designed to
help automate the process, the solution provides the basis for a powerful system able to manage the
Equipment Contract Lifecycle and its integration with Oracle’s Equipment Servicing solution.

With an increasing number of proven solutions now implemented worldwide based on this foot-
print, the solution is rapidly becoming a best-practice Oracle solution for the industry and one which
Oracle is keen to develop. With the imminent arrival of the Release 12 Oracle Lease Management
functionality offering an extended range of functionality targeting the Equipment Leasing industry,

 
 
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combined with the current Release 12 Oracle Service Contracts functionality, then the level of
functionality provided by this footprint to the industry can only be enhanced, offering a leading edge
solution both for existing and future Oracle Equipment Service Provider Clients.