How to Manage Annual Contracts with Monthly Payments in Microix

How to Manage Annual Contracts with Monthly Payments in Microix

When processing an annual contract that is paid in monthly installments (e.g., a 12-month service agreement), it's crucial to select the correct method within the Microix Workflow Modules to ensure proper budget tracking and integration with MIP Fund Accounting.

Here are the three standard methods, with a clear recommendation for best practices.

🧾 Example Scenario

You have a purchase order (PO) for an annual contract, but payment is made monthly.
Example:

• Annual amount: $12,000

• Monthly payments: $1,000 x 12 months

You want your accounting system to reflect both the total commitment ($12,000) and the monthly disbursement ($1,000).

Method 1: Create a Single PO for the Total Annual Amount (Recommended if using MIP's Encumbrance Module)

This is the most common used method for fund accounting, as it properly manages budget encumbrances.

1. Requisition/PO: Create a single Purchase Order in Microix for the full annual amount (e.g., $12,000).

2. Terms: In the PO description, note "To be paid in 12 monthly installments of $1,000."

3. Invoicing: As each $1,000 monthly invoice is received, create an Invoice in the Microix using the Encumbrance Balance button to apply it against the original $12,000 PO.

4. Balance: The system will automatically track the remaining balance on the PO, reducing it by $1,000 each time a monthly invoice is processed and posted.

Pros:

• Encumbrance: This is the key benefit. MIP Fund Accounting will immediately encumber the full $12,000 commitment, providing an accurate picture of your remaining budget.

• Audit Trail: Creates a clean audit trail, linking all 12 monthly payments directly to a single, approved PO.

• Budget Control: Prevents overspending, as the total commitment is visible from the start.

Cons:

• While using encumbrances provides accurate budget control, it also introduces extra administrative complexity. Each encumbrance generates a separate document that must be tracked, approved, and later transferred to MIP for payment processing. Furthermore, when a purchase order’s value needs to be increased (for example, due to contract amendments) or liquidated (to release unused funds), additional steps are required to create and approve encumbrance modification documents. These adjustments must go through their own workflow in Microix and MIP Fund Accounting, adding more time and coordination to the overall process. This can slow down invoice processing and increase the workload on both accounting and departmental staff.

Method 2: Create 12 Separate Monthly Purchase Orders/Invoices

This method involves creating a new, separate PO each month for the monthly amount.

1. Requisition/PO: Each month, a user submits a new Requisition for $1,000.

2. Approval: This Requisition must go through the full Microix approval workflow every time.

3. Invoicing: The $1,000 invoice is then processed against that specific month's PO.

Pros:

• Simple to match one invoice to one PO.

• Copy function can facilitate the creation of the 12 separate documents

Cons:

• High Administrative Burden: Creates significant, repetitive work by requiring 12 separate Requisitions and approval cycles. 

• Poor Budget Visibility: Fails to show the total $12,000 annual commitment in MIP. The budget only shows a $1,000 obligation, making true budget-to-actual reporting difficult.

Method 3: Use a Single PO with Scheduled Monthly Line Items

There is no single "best" method; the correct choice depends entirely on your organization's specific rules for encumbrance and budget control.

Best Practice 1: For Formal Encumbrance Accounting (Visible in MIP)

Use Method 1 (Single PO, Single $12k Line)

This is the required method if your organization's policy is to encumber all obligations and have that encumbrance immediately apply against the budget within MIP Fund Accounting.

• Why: Creating a single PO for the full $12,000 amount is the simplest and most direct way to post the entire commitment to the MIP general ledger.

• Result: Anyone running a budget-to-actual report in MIP will see the full $12,000 obligation, providing the most accurate picture of your true remaining budget.

Best Practice 2: For Budget Control Managed by Microix (No MIP Encumbrance)

Use Method 3 (Single PO, 12 Monthly Lines)

This is the best method if your organization does not require the full $12,000 to be formally encumbered in MIP, but you still need to enforce the total $12,000 budget for the contract.

• Why: the Microix module itself can enforce budget controls. In this scenario, Microix will check the total obligation of $1200 against MIP's Budget value.

• Result: This provides excellent operational control and tracking. The budget is enforced by Microix, preventing overspending on the contract, even though MIP's ledger does not show the full $12,000 as an encumbrance.