Lease pricing using non-standard yields
A yield is defined as the percentage of return on the financed amount, taking into consideration the payment streams. Additionally, a yield can also be computed on non-rental expenses incurred or the revenue generated. When the yield is recomputed on these additional parameters, it is known as a non-standard yield. For example, a yield may need to be computed based on the payout toward the broker commission and fee receivables such as maintenance fees, documentation fees, and more. A yield is an important metric used in financial analysis to estimate the potential profitability of investments. Multiple yields can be generated based on different kinds of expenses and revenues, such as broker commissions, payables, and more. This allows the lessors to do the financial analysis on varied parameters of incomes and expenses.
Generate lease pricing using non-standard yields
With the Mercury release, in addition to generating lease pricing based on the standard yields, you can also generate the pricing based on the additional or non-standard yields.
Configurations
The configuration of Yield Definition can be viewed in the Origination Configuration > Pricing Setup section.
The yield values configured in the Yield Definition are displayed on the Pricing tab of a lease application.
The additional yield is available only when the pricing method is selected as manual during the creation of an application.
Prerequisites
Before you proceed to generate the lease pricing, ensure that the following prerequisites are met:
The value of the Pricing Method is selected as Manual.
The required equipment details are specified on the Equipment tab.
The Fee Definition, Fee Set, Fee Set Assignment, and Assign Fee Set to a Lease Product are defined.
To know more about how to define Fee Definition, Fee Set, Fee Set Assignment, and Assign Fee Set to a Lease Product, see the Lease Pricing Configuration section in Q2 Origination Administration Guide.
The Yield Definition is configured.
To know about how to configure yield definition, see Yield Definitionin Q2 Origination Administration Guide.
Steps
To generate the lease pricing using additional yield:
Log in to your Salesforce account.
Go to
(App Launcher) > Applications.
On the Applications tab, select the required application ID.
Go to More> Lease Pricing> Pricing.
In the Payment Term section, select Pricing Calculator.
In the Solve For window, select Payment Amount from the Solve For list.
The supported options are:
Yield
Payment Amount
Financed Amount
Specify the required percentage of yield in the Yield field.
Select Calculate.
The Payment Amount is calculated based on the yield definition configuration.
The system calculates the additional yield percentage based on the configurations.To edit an additional yield, go to the Additional Yieldssection and then double-select the row to edit it.
Specify the required yield percentage in the Yield Percentage field of the required row.
Note:At a time, only one additional yield is allowed to be updated for the yield percentage value.
Select the Pricing Calculator button in the Payment Term section and select the User Input Yield checkbox for the additional yield that you want to consider in the calculation.
The Yield percentage and the Payment Amount are calculated based on the given additional yield percentage.
Example
With the help of the following example, let us understand how the standard yield and the payment amount get recalculated based on the specified additional yields.
Step 1: Create Yield Definitions, such as Yield Definition 1, Yield Definition 2, and Yield Definition 3, and associate those to the Fee Definitions for a product as highlighted in the next three images:
Step 2: Create a Lease application with the following details:
| Field Name | Value |
|---|---|
| Product ID | PRO-00000003 |
| Lease Type | Operating Lease |
| Sales Division | Dealer |
| Payment Frequency | Monthly |
| Pricing Method | Manually |
| Expected Start Date | 9/1/2022 |
| Expected Close Date | 9/30/2022 |
| Term | 12 |
This application is created from the product PRO-00000003, so it inherits all the Yield Definitions ( (Yield Definition 1, Yield Definition 2, and Yield Definition 3) ) and the Fee Definitions associated with this product.
Step 3: Recalculate Payment Amount and Yields based on the specified Additional Yield.
All the Yield Definitions are listed in the Additional Yield Definition section of the application. You can specify a value for those. Based on these specified Additional Yields, the Payment Amount and the standard Yield are calculated.
Scenario 1
If the Additional Yield is not specified, the Payment Amount is calculated as $17,412.08, and the standard Yield is calculated as 75.00000000.
Scenario 2
Based on the specified Additional Yield of 25%, the Payment Amount is recalculated to $14,244.99, and the standard Yield to 24.99999999%.