A current movie, "Hidden Figures," reminds us how, not that many decades ago, very intelligent individuals used manual calculations to solve complicated problems. A generation of "human computers" helped transport men into space by fully understanding the concepts behind mathematical equations. The movie is inspirational.

The movie also reminds us how dependent we have become on automation, calculators, TValue, and other programs to provide us with monthly payments, yields, discount rates, etc. I often wonder if the multiple benefits of automation have robbed us of the true conceptual meaning behind the numbers that we offer our customers every day. The commercial equipment leasing and finance industry is based upon the mathematical concept of time-value of money: "One dollar today is worth more than one dollar in the future." Originators sell time-value of money, but most originators take the concept for granted and many do not understand the true meaning behind the automated generated payments and yields which are printed out by machines.

Could you configure the monthly payment by hand on the following simple transaction?

Equipment cost: $100,000.00
Term  12 months paid monthly in arrears
Rate:   10%

Can you provide a monthly table showing how much of each payment is applied to principal and how much to interest? And why does the principal and interest amount change each month?

Even if you cannot do the math by hand, or more importantly, don't have the time to manually configure each proposed transaction, it is important to know that by collecting monthly payments, rather than one payment at the end of 12 months, a customer's total pay-out is reduced. By making payments in advance, rather than  in arrears, payment amounts can be reduced. The timing of payments matters.