Financial Products

Financial Products

1. Purpose

Financial Products is an essential setup component, and no leasing Quotes or Applications can be completed without Financial Product selection. Financial Product functionality is logically separated with the following functional areas:

• General - covers schedule creation, calculation, and another generic setup
• Fees And Penalties
• Rules
• Refinancing
• Accounting and Tax
• Invoice Type
• Lease Termination
• Asset Assessment (Full-service Lease)
• Workflow
• Numbering
• Document Templates
• Compliance Check List
• Approval Conditions
• Initial Invoices Posting Setup
• Receivables Type Posting Setup
• Financial Product Instalment Days
• Initially system comes with predefined Financial Leasing and Operating Leasing financial products.

2. Financial Product setup

2.1 General

Code, Description and Comment. The fields are used to uniquely define financial product. The Code is used widely in the system and must have short and clear value for this reason.

Valid From and Valid Until. The fields allow to specify period in which new Quotes using this Financial Product can be created.

Product Status. Field to save financial product from accidental changes and to control if it is available to use for quotation and application. Available statuses:

• New – new financial product configuration in progress.
• In Deliberation – program configured, approval in progress.
• Active – program is approved and can be used on deals.
• Expired – has been active but ended.
• Unrealized – has NOT been approved, no deals created under this financial product.
• Terminated – has been active but ended early.

Fin. Product Type. Affects what controls are displayed on a Contract Card and etc. pages, how Asset Submission, Compliance rules are verified. Must not be used for posting verification (use field “Accounting Group” instead).

Prorated Schedule. Allows to use pro-rated installment schedule.

Full-Service Lease. Affects what controls are displayed on a Contract Card, Services and etc. pages. To use this feature, Fin. Product Type must be Operating Lease, Create Fixed Assets must be enabled, Interest Recognition must be On Instalment Due.

Installment Schedule Method. You can choose calculation implementation for a financial Product. Select Classic PMT to stay with SOFT4 calculations matching Excel PMT function. Select TValue to have calculations following TValue calculation logic. Select Usage Based Rental for Rental calculations.

Use Effective Date of Rescheduling. You can flag the field if Soft4 Edition = TValue only. It affects capitalization date on rescheduling.

Create Fixed Assets. Automatically create fixed assets. Mainly used for Operating Lease.

FA Depreciation Book Code. Field value can be selected if Create Fixed Assets = true. All assets created for this financial product will get FA Depreciation Book Code value.

Currency Code. If a company is operating with lease agreements with various currencies, then separate financial products must be setup for each different currency. Currency Code of a financial product determines the currency of a contract. Currency of a contract, its financial product and program must match.

Currency Exchange Rate Type. If a company is operating with lease agreements with various currencies, then separate financial products must be setup for each different currency. Currency Exchange Rate Type determines how the system selects currency exchange rate when posting entries related to currency contracts. When Currency Exchange Rate is used the program uses the posting date on the invoice or journal line and the available rates in the Currency Exchange Rate table to find the relevant exchange rate. If a Fixed Contract Currency option is used the program uses the exchange rate that is fixed to the lease agreement.

Instalments Due. The value is inherited to Schedule and affects instalment interest calculation. Refer to Excel PMT function for more detailed reference.

Annuity For Amount. Defines whether amount financed including taxes or amount financed excluding taxes will be used as the base for instalment schedule calculation. This affects final instalment rounding results as well. Select Incl. Tax as default value if you are not sure you need annuity for amount excluding taxes.

Interest Tax Calculation. Always use Tax Rate value unless you need equal instalments and Principal tax rate is not equal to Interest tax rate. With this calculation method total calculated interest GST amount is distributed in equal parts for all instalments and therefore does not reflect real tax amount for a particular instalment.

Days Of Actual Interest. Select what number of days per year to use in calculations if Interest Method value is Actual.

Interest Recognition Method. Specifies if interest should be recognised on instalment due, or at the end of month. In case of End of Month, interest recognition schedule is generated.

Applies for Individual/Business and Default Applicant Type. These fields define if financial product can be used for Individuals, Business or for both types of Customers when creating Quote and Application.

Default Applicant Type. The default value is applied to Quote or Application field Individual/Business when Financial Product is selected.

Solve for Interest % Allowed. Allows user input regular installment amount and system will solve the interest rate on quotation and application.

Days Business Quote Is Valid and Days Individual Quote Is Valid are used to calculate “Quote Valid Until” date on a Quote.

Schedule To Asset Relation. Reserved for future and currently not used.

Asset Acquisition Method. Specifies whether asset is acquired during lease activation (At Lease Activation) or issuing a purchase order (Via PO (independent of lease activation)).

Min. Status for Disbursement. Specifies minimum application/contract status when supplier payment is released.

Fixed Payment Allowed. The value defines if Manual Instalment Amount can be specified in Schedule. It is used for fixed payment instalment schedule generation.

Pro-rata allowed. The flag defines whether pro-rata calculation and billing is allowed for the financial product on contract activation. Pro-rata Interest is calculated when Schedule "Activation Date" is lower than "Starting Date".

Min pro-rata Days. If Pro-rata is allowed, the “Min pro-rata Days” value sets the lower limit for pro-rata days that will be not billed.

Stamp Tax (On Principle) Allowed, Stamp Tax (On Interest) Allowed and Stamp Tax (On Fees) Allowed define if Stamp Tax is allowed to input and calculate on Quote/Application.

Min. Amount Financed. On Application submission system verifies whether Amount Financed is not lower than specified.

Loan Protection Insurance Due. Available options: From First Installment Ex. RV, From First Installment Incl. RV, From Second Installment Ex. RV, From Second Installment Incl. RV. Selected value defines insurance starting date.

Default Program Code. This program is applied automatically when a financial product is selected on Quote/Application.

2.2 Residual Value

Residual Value Allowed. The value defines whether Residual Value field in Schedule can be specified.

Residual Value Input Control Rule controls Residual Value input

• On Schedule – User can input residual value on the Schedule but can’t input directly for each Asset.

• On Asset – User can input residual value on Asset only. Residual Value field on Schedule is updated automatically and can’t be modified manually.
  Residual Value Type. Defines how to treat Residual Value when generating instalment schedule.

• Balloon – the last instalment includes Residual Value

• Separate Payment – the additional instalment is appended to the end of instalment schedule.

• Stays Unpaid – Residual Value is not included to instalment schedule.

Residual Value Base. The option determines the base figure for residual calculation. The base can be Asset Price + Total Bolt-Ons, Asset Price and Capital Amount of a contract.

Residual Value Input. Defines how Residual Value is allowed to be inputted in the contract. Possible values are:

• Percentage or Amount – allows residual value input in both, percentage and amount;
• Percentage – allows residual value input in percentage only, amount is calculated automatically;
• Amount – allows residual value input in amount only, percentage is calculated automatically.

Unguaranteed Residual Due. Defines when residual is expected to be paid.

• With Last Instalment – amount is added to the last instalment.
• At End of Term – separate instalment is created one period after the last instalment.

2.3 Downpayment and Deposit

Downpayment Allowed. The value defines whether Deposit Amount is allowed to be included on Schedule.

Downpayment Payment Control Rule defines action for Downpayment on activation:

• Blank – no action.
• Paid Before Activation – user gets an error on activation if Customer’s credit for current Application is less than Downpayment amount.
• DD Collection on Activation – DD schedule is updated automatically on activation to include DD collection entry for Downpayment. Works only in case when Payment Method Code for Application is flagged as Direct Debit and DD Soft4 module is enabled.

Downpayment Base. The option determines the base figure for downpayment calculation. The base can be Asset Price + Total Bolt-Ons, Asset Price and Capital Amount of a contract.

Downpayment Input. Defines how Downpayment is allowed to be inputted in the contract. Possible values are:

• Percentage or Amount – allows downpayment input in both percentage and amount.
• Percentage – allows downpayment input in percentage only, amount is calculated automatically.
• Amount – allows downpayment input in amount only, percentage is calculated automatically.

Supplier Deposit Allowed. The value defines if Supplier Deposit field is editable on Schedule Card.

Use Supplier Deposit Split. If enabled allows to split supplier deposit per supplier on Schedule Card.

Deposit Allowed. The value defines if Deposit field is editable on Schedule Card.

Deposit Payment Control Rule defines when the deposit must be paid.

• Blank – no action.
• Paid Before Activation – user gets an error on activation if Customer’s credit for current Application is less than Deposit Payment amount.
• DD Collection on Activation – DD schedule is updated automatically on activation to include DD collection entry for Deposit Payment. Works only in case when Payment Method Code for Application is flagged as Direct Debit and DD Soft4 module is enabled.

2.4 Fees and Penalties

Direct Debit Fee Incl. VAT. Amount the leasing company charges a customer for each direct debit collection.

Direct Debit Fee VAT group. The field defines a default tax rate to be used for Direct Debit Fee.

Dishonour Fee Incl. VAT. Amount the leasing company charges a customer for each dishonoured direct debit collection.

Dishonour Fee VAT group. The field defines a default tax rate to be used for Dishonour Fee

Penalty Int.% Method provides two options:

• Add Penalty % on top of financing interest – sum of Penalty Interest rate and contract financing interest rate.
• Apply Penalty int. % directly – flat Penalty interest rate.

Standard Penalty Interest %. The value is inherited to table Contract and is used in Contract Balance calculation to calculate penalty interest (regular + penalty interest)

Penalty Interest Base. Possible two options:

• Current Receivable – Interest Base amount equal to Current Receivable (total overdue amount).
• Current Receivable excl. unpaid penalties – Interest Base amount calculated by deducting unpaid Penalties from Current Receivable (total overdue amount minus posted penalty interest amount). Choose Current Receivable excl. unpaid penalties to avoid penalty calculation on previous period overdue penalty.
  Field Penalty Invoicing Method allows to choose how penalty interest will be invoiced by Invoicing Run batch process:
• Invoice with the next instalment – Penalty Interest is recalculated and invoiced with the next scheduled instalment when executing Invoicing run process.
• Invoice on demand – run Penalty Invoicing manually for a certain contract any time, see Figure 10 Contract Card - Manual Invoice Penalty Interest run.
• No penalty – penalties won’t be calculated.

Minimal Penalty Interest Amount To Post For Customer field determines the lower bound of the penalty interest to be posted. Penalty interests bellow the value are not posted.

2.2 Rules

Upfront Fees Payment Control Rule defines action for Upfront Fees on activation:

• Blank – no action.
• Paid Before Activation – user gets an error on activation if Customer’s credit for current Application is less than Upfront Fees amount.
• DD Collection on Activation – DD schedule is updated automatically on activation to include DD collection entry for Upfront Fees. Works only in case when Payment Method Code for Application is flagged as Direct Debit and DD Soft4 module is enabled.

First Instalment Payment Control Rule defines when the first instalment must be paid.

• Blank – no action.
• Paid Before Activation – user gets an error on activation if Customer’s credit for current Application is less than First Instalment amount.
• DD Collection on Activation – DD schedule is updated automatically on activation to include DD collection entry for First Instalment amount. Works only in case when Payment Method Code for Application is flagged as Direct Debit and DD Soft4 module is enabled.

Penalty Interest Invoicing DD Rule defines action for DD on Penalty Interest Invoicing

• Blank – no action.
• DD Collection on Invoicing – DD Schedule is updated automatically to collect Penalty Interest invoiced automatically. You can select this option only when Create Sales Document = FALSE in Accounting And Tax area.

Schedule Installment Calculation Adjustment Type for Annuity and** Schedule Annuity Calculation Max Allowed Difference** is used to adjust calculated installment amount to avoid rounding fluctuations. Possible Schedule Installment Calculation Adjustment Type for Annuity values: Auto, Configured Value, None. Recommended option is Auto when maximum allowed difference for adjustment is 0.98.

Min Contract Status for Purch. and Disbursement and Max Contract Status for Purch. and Disbursement fields control for what Contract statuses the system allows to post Asset Purchase invoice (e.g. minimum status is Approved and maximum is Active).

Disable Approval Conditions Verification and Disable Compliance Check List Verification allows to skip compliance checks on Compliance workflow. It is recommended to keep all verifications active.

Collection Letter Sequence is used to define the sequence of collection letter generation. To set up Collection Letter Sequence see user guide “Collections”.

2.3 Refinancing

Refinancing Fin.Prod allows to force another financial product when initiating refinancing.

Refinancing Program allows to force another program when initiating refinancing.

Refinancing Contract Nos. is used for a refinanced contract number selection.

Refinance Originator No. allows to force specific Originator for a contract refinanced.

Refinance On Amount allows to choose refinancing amount either Pay-out Figure or Outstanding Principal.

Refinance Starting Date Formula allows to define Starting Date for a new Contract. For example "+CM+1D" would result new contract starting date to be on the 1st of the following month, relative to refinance date. If blank, New contract "Starting Date" will be equal to the date of refinance.

2.4 Accounting And Tax

Amounts including VAT. Defines if the Amount Financed should include Asset price including or excluding purchase VAT. If “Amounts including VAT” is not flagged, then amount financed will contain Asset Purchase price excluding VAT.

Create Sales Document. The flag in this field will result in Sales Document production and posting during the Invoicing Run batch process. It is recommended to use it only in case the Customers need to receive printed sales invoice for each instalment. Otherwise leave the flag unchecked and benefit from much simpler transaction reversal procedure.

Detail Customer Entries. Toggle switch on when application priorities are used.

Accounting Group. Defines Contract activation postings to GL, Contract invoicing, Contract Balance calculation. Options are:

• Net Receivable. On activation Schedule “Financed Amount” is posted to GL Account specified in “Leasing Posting Setup” field "Net Receivable (BS)".
• Gross Receivable. On activation Schedule “Financed Amount” excluding tax and all calculated Interest excluding tax is posted to GL Account specified in “Leasing Posting Setup” field "Gross Receivable (BS)", tax is posted to GL Account specified in “Leasing Posting Setup” field "GST on Net Receiv. (Group)" and all calculated negative Interest excluding tax is posted to GL Account specified in “Leasing Posting Setup” field "Unearned Interest (BS)".
• Lease Inventory. On activation acquisition cost, which is equal to Asset “Purchase Price” value, is posted for each Contract’s asset.
• Rental. The same as Lease Inventory, but used when Financial Product Type is Usage Based Rental.

Split Principal & Interest on Gross Receivable specifies if Principal & Interest will be splitted on the invoice. If disabled it will be combined into a single line as Installment.

Use Current/Non-Current Receivables Split allows to allocate receivables to current and non-current. Can be used only with accounting group Gross Receivable.

Accrue Interest. When flagged batch job accrues interest on the last day of the month. Normally used for Financial Leasing.

Accrue Lease Income. When flagged batch job accrues complete instalment on the last day of the month. Can be used for Operating Leasing.

Posting Group For Active Contr. and Post. Grp. Written-off Contr. are used in a Contract Balance calculation and Write-Off process.

Posting Group for Deposit. Defines posting group for Deposit amounts in calculation process.

Establishment Fee Financed. The field defines a default treatment of establishment fee on contract. If enabled establishment fee will be included in amount financed, if disabled will be included in upfront fee. User can override it on contract.

Originator Fee Financed. The field defines a default treatment of originator fee on contract. If enabled originator fee will be included in amount financed, if disabled will be included in upfront fee. User can override it on contract.

Brokerage Financed. The field defines a default treatment of brokerage on contract. If enabled brokerage will be included in amount financed, if disabled will be included in upfront fee. User can override it on contract.

Stamp Tax Financed. The field defines a default treatment of stamp tax on contract. If enabled stamp tax fee will be included in amount financed, if disabled will be included in upfront fee. User can override it on contract.

Use Dedicated RV G/L Account can’t be activated if Accounting Group = Lease Inventory. Enable this flag if you need to post Residual Value amount into dedicated Net Receivable account.

Purchase VAT Group (default). The field defines a default tax rate to be used on financed asset acquisition (applied to Asset but can be updated by user afterwards).

HP VAT Due Upfront, on Activation The field defines if Hire Purchase contract purchase VAT needs to be paid upfront. If enabled customer payable will be created on contract activation.

HP VAT Applies. If flagged, adds principal and interest VAT to one of the first installments (usually, in month of VAT settlement) or downpayment.
HP VAT Due With. Defines when VAT is paid:

• Installment – VAT is paid with installment.
• Downpayment - VAT is paid with downpayment.

HP Principal VAT Gr. and HP Interest VAT Gr. Defines posting groups for Hire Purchase principal and interest postings.

Admin Fees VAT Group. The field defines tax rate to be used for Early Termination Fee, Establishment Fee (Upfront) and Establishment Fee (Financed) Schedule components.

Originator Fee VAT Group. The field defines a default tax rate to be used for Originator Fee (Financed), Originator Fee (Upfront), Installment Fees.

Brokerage VAT Group. The field defines a default tax rate to be used for Brokerage Amount (Financed) and Brokerage Amount (Upfront).

Commissions VAT Group. The field defines a default tax rate to be used on commissions (Commission Amount (LCY).

Downpayment VAT Group. The field defines a default tax rate to be used on Downpayment amount.

Subvention VAT Group. The field defines a default tax rate to be used on Subsidy amount.

Brokerage Cr Posting. The field defines brokerage posting on Contract activation. Options are:

• Originator Payable
• G/L Clearing Acc.

Commissions Cr Posting. The field defines commissions posting on contract activation. Options are:

• No posting on Activation,
• Originator Payable,
• G/L Clearing Acc.

Choose No posting on Activation if you want to use Commission batches process commission payments.

Insurance Commissions Payable Cr Posting. Used for originator commission A/P posting on activation. Available options are:

• Blank
• Originator Payable,
• GL Clearing Acc.

Leave blank value if you do not calculate Insurance commissions or they must not be invoiced on Contract activation.
Insurance Commissions Receivable Dr Posting. Used for lessor (leasing company A/R) commission posting on activation. Available options are:

• Blank
• Insurer Receivable,
• GL Clearing Acc.

Leave blank value if you do not calculate Insurance commissions or they must not be invoiced on Contract activation.
Subsidy Dr Posting. The field defines subvention posting on contract activation. Options are:

• No posting on Activation,
• Receivable,
• G/L Clearing Acc.

Trade-in Asset Value Dr. Posting field defines the method used to reduce Net Receivable or Gross Receivable amount on Contract activation. Available options:

• "Stock Clearing Acc."
• "Supplier Payable"

OL Downpayment Cr. Posting. The field defines downpayment treatment for Operating Lease product. Available options:

• Fixed Asset
• Revenue

Principal VAT Group (Instalment). The field defines tax rate to be used for a principal value (Amount Financed).

Interest VAT Group (Instalment). The field defines tax rate to be used for interest calculated in instalment schedule.

Penalty Interest VAT Gr. (Instalment). This field defines tax rate to be used for penalty interest calculated.

Sales VAT Gr. (Instalment). The field is used to apply tax for installments (instead of Interest VAT Group (Instalment) and Principal VAT Group (Instalment)) when Interest Recognition Method = End of Month.

2.5 Invoice Type

On instalments posting to Customer Ledger entries from Leasing functional area system assigns specified Invoice Type for various types of invoices (works like Business Central Source Code). It helps to identify the reason of posting and have different invoice layouts if required.

Invoice Type For Instalments. Is used for regular installment posting.
Inv. Type For Inertia Instalments. Is used for inertia billing (Operating Leasing).
Invoice Type For Residual. Is used for residual invoicing.
Invoice Type For Early Pay-Out. Is used for Early Payout generated invoices.
Invoice Type For Penalty Int. To be used for penalty interest.
Invoice Type For Shortfall. Is used for Shortfall invoices.
Invoice Type for DD Fee. Is used for Direct Debit fee invoicing.
Invoice Type for Dishonour Fee. Is used for Dishonour Fee invoicing.
Invoice Type for Asset Assessment. Is used for Asset Assessment invoicing.

2.6 Lease Termination

Cust. Credit Tolerance on Closure. Determines customers credit amount that is tolerable for the contract to be closed.

Cust. Debit Tolerance on Closure. Determines customers debit amount that is tolerable for the contract to be closed.

Trigger Contract Closure. Defines contract closure process. Available options:

• Automatic when fully invoiced and fully paid
• Manual (Leasing User will close the contract)

Shortfall Interest Calculation. Defines what interest amount should be calculated and invoiced to customer at the time of a contract shortfall. The possible options are:

• All Unearned Interest,
• Up To Shortfall Date.

Pay-Out Fee Code. The field is inherited to Early Termination and defines fee amount or discount rate.

Pay-Out Figure Method. The value defines how Early Pay-out figure is calculated.

2.7 Asset Assessment (Full-service Lease)

In Asset Assessment (Full service Lease) fast tab, you can set assessment controllers:

Early Termination Fee Applies checkmark should be checked if you want to charge when contract is terminated before contract end date.

Inertia Rental Applies checkmark should be checked if you want to charge when client is late to return. It differs from Inertia Billing functionality because it charges for as many days as there are delays, not full month.

Mileage Limit Applies checkmark should be checked if you want to charge when client exceeds predefined mileage. Client must additionally pay for each extra kilometre.

Last Mileage Date Tollerance (days). Enter how many days ago the odometer data was taken before asset return.

Service Settlement Applies checkmark should be checked if you want to charge for additional services.

Insurance Settlement Applies checkmark should be checked if you want to charge for additional insurances.

Asessment Conditions Apply checkmark should be checked if you want to charge for additional conditions after assessment check.

Asset Sale Applies checkmark should be checked if the asset is being sold. Usually, it being sold for dealer.

Depreciate Asset until Return Date checkmark should be checked if you want to calculate fixed asset depreciation until return date if it has not been calculated yet.

Close Contract on Asset Return checkmark should be checked if you want to close contract (change status to Paid in Full) when asset has been returned but not necessarily was fully settled. Usually used if you have big clients, who has several contracts and makes payments every month regularly.

2.8 Workflow

Workflow setup defines what workflow templates will be used by the system to create Application Assessment and Compliance workflows, if needed. The default workflow’s steps are needed to simplify/automate interaction with business workflows.

2.9 Numbering

Leasing Contract Nos. allows to have different numbering for each financial product. The number of series is selected on new Application creation, not for Quote creation.

2.10 Document Templates

Document setup allows to setup document template for various document generated in a system. It allows to use different templates per language the customer speaks, per Individual/Business and per Legal Form as well. Refer to Document Management documentation for how to work with documents.

3. Compliance Check List

Two different checklists can be created for each Financial Product. This is because usually the verification of Individual and Business customers is different. Officer must flag each compliance list item as complied or not complied before Contract itself can be complied unless compliance checks are disabled in Rules.

4. Approval Conditions

Different Approval Conditions can be defined for a Financial Product based on the following criteria: Individual/Business, Legal Form. Required Approval Conditions must be complied on Compliance unless compliance checks are disabled in Rules.
Supporting Doc. Type can be attached to a condition. In this way system is able automatically verify for the existing uploaded document in the system. These checks are run depending on Required For field value. Possible values of this field: Submit for Approval, Submit for Settlement, Activation. Furthermore, these checks can be applied only in some certain situations, and this is managed in field Required in Context. Current possible options: All, If has Guarantor, If foreign customer.

5. Initial Invoices Posting Setup

There is an option to create Sales documents on Contract activation, not only when invoicing installment schedule. Populate this setup only for financial products with Create Sales Document = true. The setup allows to include first installment into initial invoice as well.

Initial Invoice Receivable Type defines Account Receivables components you want to include into initial sales invoices. Possible components:

• Services Upfront
• Insurances Upfront
• Establishment Fees Upfront
• Originator Fees Upfront
• Brokerage Upfront
• Taxes Upfront
• Downpayment
• Subvention
• Upfront Sales VAT
• First Installment
• Pro-rata
• Full Asset Value
• Downpayment Deduction

Invoice Type allows to specify print layout for the initial invoice. Also, it allows to group different components to be included in the same invoice (e.g., Establishment Fees Upfront and Pro-rata are in the same initial invoice but Insurances Upfront creates another initial invoice).

Invoicing Trigger specifies when initial invoice will be created. Available options are:

• When Paid or On Activation
• On Activation

Priority used with Invoicing Trigger option When Paid or On Activation and specifies the priority on invoice to be created. Read more in Initial Invoicing user guide.

6. Leasing Receivables Type Posting Setup

By creating this setup, you can manage how Customer Ledger Entries are created by grouping account receivable components when detailed posting is enabled (Detail Customer Entries = true) and sales document is posted. Every single possible Account Receivables component in Leasing area has its own corresponding Leasing Receivable Type which helps to identify the source of the receivable. By assigning Source Code and configuring Application Priorities you can define application priority for every receivable type.
Every Account Receivables component can be posted using different Customer Posting Group.

7. Installment Days

By creating this setup you can define which day of the month installments are due. For example, you can set „Day“ field to „1“ to arrange billing on the first day of the month. You can set multiple lines to divide payments into different batches. Set „Day“ to „31“ to arrange billing on the last day of the month.