When dealers use a floor plan, they don’t have to use dealership savings to purchase inventory. This means dealers have a lot more flexibility available when it comes to using their cash. However, auto floor planning comes with its own set of management responsibilities. When it comes to managing a floor plan, dealers should be aware of a number of general “do’s” and “don’ts.”
Do Manage Cash Flow Properly
Floor plans help dealers to manage their cash flow by providing a line of credit for dealers to purchase inventory. With a dealer finance plan in place, dealers don’t need to use their cash on hand to purchase extra inventory. That cash then can go towards other expenses, such as advertising or overhead. Many dealers find success and profit when they manage their cash flow properly and floor plan responsibly by spacing out inventory purchases.
Don’t Floor Plan Irresponsibly
Mistakes happen when dealers use their floor plan irresponsibly. Just because a dealer is cleared to use a $250,000 line of credit, doesn’t mean that a dealer should use that entire line of credit on one day. In addition, if a dealer purchases more inventory than what they can reasonably sell, they’ve put themselves at risk to not be able to make floor plan payments, especially if they use their entire line of credit.
Do Maintain Communication With Floor Plan Financing Company
Not able to make a payment on time with your auto floor planning company? If so, dealers should get in touch with their floor plan financing company. If a dealer is proactive and honest, their floor plan provider will be more likely to work with them to resolve any issues or problems that they may encounter.
A floor plan company will always want to know about the health of a dealer’s business. Not communicating potential issues to your floor plan provider can make it harder to remedy potentially preventable issues.
Do Understand Dealer Warning Signs
Dealer floor planning providers keep a close eye on certain signals that can indicate that a dealer might be struggling. The three main signals floor plan providers watch for are the following: collateral audits, insufficient funds (or NSFs), and inventory turn times.
Floor plan finance companies conduct collateral audits to ensure that they can verify inventory. Floor plan auditors will typically conduct an audit based on a time frame determined in a dealer’s contracted terms. If a floor plan company can’t verify a dealer’s inventory, it can be seen as a red flag. Dealers should let their floor plan provider know if inventory needs to be moved from a lot to another location for repairs or for a sale– just to make sure that auditors can verify that information.
Insufficient funds or NSF’s is an indication that dealers can’t make their payments on time, and can be seen as red flag. This is one of the biggest signs that there is an issue with a dealer’s account management, and it affects how the floor plan provider views their chances of being repaid.
Floor plan financing companies also keep a careful watch on average inventory turn times. Holding on to a vehicle for an extended period of time, or aged inventory, is a drain on cash flow and dealer resources. An increase in aged inventory means that is a bit more difficult for a dealer to earn back the initial vehicle investment, which in turn can make it harder to pay a floor plan financing company back because aged inventory compresses profit margins.
Dealers who are aware of these “do’s” and “don’ts” can ensure their auto floor plan is managed properly, and in turn will likely have a pleasant auto floor planning experience in addition to better profits. Have additional questions on floor plan management? Reach out to your local NextGear Capital representative to learn MORE.