Royalty contract management is intended for companies that exercise the right to use a third party's assets and/or intellectual property.
Business scenario:
A company (the "licensee") has an agreement to pay royalties to a third party (the "licensor") for use of their intellectual property, for instance, designs for the manufactured products. Payment terms are monthly based on the recorded sales invoices.
Walkthrough:
First off all, you will need to create a contract with intellectual property owner
Create new Royalty agreement (Accounts payable > Broker and royalties > Royalty agreements)
In the Cumulate sales by field select Invoice to calculate the royalty amount every time that a sales order line is invoiced
In the Approval required option set to No, since we don\t want a royalty program owner approve the claims before a royalty can be turned into an invoice that is payable to the licensor.
Set the Accrual account and Expense account fields that will receive accrued amounts during the intermediate stage between approval and processing.
Under Selection tab in the lower part of the page select the products that qualify for a royalty fee.
Under Royalty amounts tab in the lower part of the page set up royalty rates
Click Validation button to validate the agreement. After validation agreement would be closed for editing.
Note: If you need to change the agreement, click Validation button and check Remove validation flag. It will work if you don't have unprocessed claims.
The next steps is to sell products that qualify for a royalty fee and generate a claim
Create new Sales order
Add line that was added to the Royalty agreement
Click Sales order line > View > Price details > Royalty FastTab to see royalty fee
Note: If you cannot see Price details option, navigate to Accounts receivable parameters page, on the Prices tab, on the Price details FastTab, set the Enable price details option to Yes.
Once sales order is invoiced, royalty claim will be generated.
To view all the claims, select Accounts payable > Broker and royalties > Royalty claims.
If Approval required option was set to No, royalty claim will be automatically processed, a vendor invoice for the royalty amount will be created and posted. As a result, the vendor's payable account is credited, and the Purchase expenditure for expense account for the category defined in the parameters is debited.
If Approval required option was set to Yes, royalty claim will NOT be automatically processed. A/P clerk must complete the royalty claim. On the Royalty claims page, on the Action Pane, A/P clerk needs to select Approve and then Process buttons. The following events occur upon process:
- the claim's status is changed to Completed:
- a Royalty accrual journal posting reverses the previous interim amounts on the accrual payable and expense amounts.
- a vendor invoice for the royalty amount is created and posted.
More details can be found here: https://docs.microsoft.com/en-us/dynamics365/finance/accounts-payable/royalty-contract
