used Car Dealer Floorplan Financing Fundamentals

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A used car dealer floorplan financing partner will often give dealers the cash flow infusion they need to take their dealership to the next level. However, before integrating a new business partner, it’s crucial to understand the fundamentals of how the partnership can boost dealership growth and how operations may need to shift to accommodate that growth.

How does a floor plan improve dealership cash flow?
When a dealer acquires inventory they typically use their dealership savings. Until the vehicle sells, a dealer has no access to additional capital to purchase more inventory, improve operations, or hire more staff.

With a floor plan, dealers can use the funds supplied by their floor planning partner to buy vehicles. Consequently, dealers don’t have to touch dealership savings to buy inventory, and can use those funds for other expenses. In theory, a car could sit on a dealer’s lot for 30 days and only be required to paid a minor fee after a contractually determined number of days, a fraction of the price of purchasing a vehicle in full. This allows dealers to use dealership funds to grow operations in other areas.

How could a floor plan shift current operations?

Accommodating more inventory
Compared to just using dealership savings, using a line of credit to purchase inventory means dealers can purchase more inventory than usual. Additional inventory can mean more sales, but it can also cause a surge in activity for other operational departments. For example, buying more inventory can mean needing more parking spaces on your lot, or additional reconditioning work for your service department. Be aware of potential growing pains your dealership may face by bringing more cars to your dealership lot.

Shifts in title management
Managing titles is a daily job for dealerships. For some dealers, there are often concerns that utilizing a floor plan company limits immediate access to titles. However, many used car dealer floorplan financing partners offer the ability to view titles anytime through their account management platform. Additionally, depending on the state, some floor plan financing companies offer to complete title work on the dealer’s behalf, saving dealers time and overhead. Though dealer’s may have some reservations about letting a floor plan company assist in title management, there are a number of unrealized benefits of which dealers can take advantage.

Periodic accounting for vehicles floored
Any investor wants to be assured their funds are being used correctly. In the same way, many floor plan financing companies want to ensure the vehicles bought with floor plan funds are where they’re supposed to be. Periodically, dealers are audited to account for all vehicles currently floored. Dealers that organize bills of sale, repair invoices, and have records of where each vehicle is will have a much easier experience during the audit process.

Though changing ingrained processes can be intimidating, sometimes it is necessary to fully realize dealership growth. If you’re thinking about bringing in a floor plan partner, understanding a few fundamentals about how floor plan financing can grow and shift dealership business can help ease the transition and integration into current operations. Ask your local NextGear Capital representative about potential growth your dealership could see with a line of credit.