Solar Financial Products

Products are at the core of Solar's data driven functionality

Standard products include Hire Purchase (HP), Lease, Loan, Operating Lease and Contract Hire

Other products include equalised repayments, Murabaha, Bill and collect (disclosed and undisclosed)

Standard products may be bespoke to your exact requirements or new products may be created by copying and then modifying an existing product

For all products income may be recognised daily or at month end

The method used to recognise earnings takes one of the following values:

Straight line (daily)Apportion earnings daily over the term of the contract as for example in an Operating Lease
Straight line (monthly)Apportion earnings in equal monthly amounts over the Term of the Contract with a full month in the first month of the Contract
Rule of 78Apportion earnings using Rule of 78 based on the Term of the Contract with a full month in the first month of the Contract
Principal/interest split (the default)Apportion earnings using the daily actuarial method over the term of the contract based on the cash investment
Apportion cash receivedOnly recognise income in so far as cash has been received. The principal/interest split method is used to apportion the income into capital and interest

There is an option to "Finance VAT". This is used where the VAT output is the VAT on the cost of the asset and occurs at the start of the contract as, for example, with Hire Purchase (HP). The lessee reclaims the VAT and passes it to the lessor, possibly with a time delay. The lessee is thus responsible for the the VAT that the lessor has paid

The usual assumption is that the VAT is paid by the lessee on the start date of the Contract but sometimes there are delays in receipt of the "VAT deposit" as, for example, if the lessee needs to wait until he has reclaimed it from HMRC. In this case the VAT is financed by the lessor with a consequential increase in the payments from the lessee

In a lease the lessor reclaims the VAT on the cost of the asset and the lessee reclaims the VAT on his lease payments so each is responsible for his own VAT

There is an option to indicate whether a VAT suspense account entry should be made when the date the invoice is raised is earlier than the due date. This is often the case since raising an invoice ahead of the due date enables the lessee to pay in good time (or for a direct debit collection to be made)

A product may be "variable rate" in which case periodic adjustments are made as interest rates change and additional invoices raised to collect those amounts. Most contracts are fixed rate. Solar has a wide variety of variable rate calculations

For example, a setting "Variable rate collar method" indicates whether an upper or lower bound on a variable interest rate applies to the base rate or the rate over base rate and takes one of the following values:

Short descriptionDescription
None (default)No collar applies
Collar applies to interest rateCollar applies to the underlying money rate series
Collar applies to total rateCollar applies to the total rate ie money rate series plus margin

Solar handles contracts with "construction periods" where there are multiple drawdowns before a lease contract begins. Variable rate rentals are calculated during this construction period

A product may have late payment (penalty interest) charges added when a lessee makes payments after the due date, possibly allowing for a grace period

A product may have "return conditions" as, for example, with Contract Hire where the condition of the asset at the end of the hire period is specified and charges may apply when an asset is returned and these conditions are not met

A percentage of any secondary income may be applied to the residual value (if any) before it is taken to profit. Once the RV is written off then 100% of the secondary income is taken to profit

A setting "Business days method" determines what (if any) adjustment should be made for business days:

Short descriptionDescription
No adjustment (default)No adjustment is made
Next business dayUse the next business day. Thus Saturday and Sunday become Monday. There is a also a list of public holidays going up to 2030 which are used depending on the Currency (GBP, USD or EUR)
Previous business dayUse the previous business day. Thus Saturday and Sunday become Friday. The same list of public holidays as for option 1 is also used.

A setting "Interest compound method" takes one of the following values:

Short descriptionDescription
Compound on specified datesCompound on the dates set up for interest rate "compound dates"
Compound on payment dates (default)Compound on the regular payment, balloon, buyback, VAT deposit and residual value dates
Compound at month startCompound on the first day of the month (accruals to the previous end of day)
Compound at month endCompound on the last day of the month (accruals to the previous end of day)

A setting "Option fee cash accounting" enables Option fees to be taken to profit on the day they are collected, otherwise they are spread in line with earnings

There is an option to automatically create a back to back funding contract when a new contract is entered

Each product has a list of cash flow and interest types which are to be included when a contract is created using this product. For example, VAT deposit is only included for HP contracts