Automotive Floor Plan Management Best Practices

Dealer using First Gear

Once a dealer is cleared to use an automotive floor plan, automotive floor plan management tipsthey instantly have access to more capital to aid in purchasing inventory. However, along with that instant access to more capital is a new set of management responsibilities. Keeping these best practices in mind will help dealers integrate their new capital into their current business plans, allowing them to use their floor plan more effectively.

Fit the floor plan to the dealership
Dealers need to be aware of their own business numbers in order to optimally manage an automotive floor plan. What is the dealership’s average inventory turn time? How many cars need to be sold in order to meet operating expenses? What is the average profit margin per car? Knowing the answers to questions like these can give dealers key insights that help establish where they were, where they are going and how long it will take for a dealer to reach their goals. The answers to those questions can also provide clarity on how an automotive floor plan can fit into the current shape of the business.

Use floor plans for discipline
When a dealer uses cash or a regular business loan, there is no incentive to sell a car or profit quickly. Additionally, a dealer’s initial investment will depreciate depending on how long the vehicle stays on their lot. Floor planning can help provide a dealership with discipline. Dealers have a given amount of time available until they have to pay a vehicle off. Use that deadline to the dealership’s favor.

If a dealer hasn’t received a profitable offer on the vehicle due for payoff, that approaching deadline can jump-start their inventory exit strategy process. Whether that exit strategy includes selling the car at auction, working with other local dealers or holding out for a more profitable offer, the floor plan deadline ensures that a dealer doesn’t just let their inventory, and their initial investment, depreciate.

Always floor plan responsibly
A dealer’s business data combined with a floor plan can lead to excellent dealership profits. However, dealers need to make sure that they floor plan responsibly. If a dealer uses their entire line of credit and those vehicles haven’t sold once payoff time arrives, that dealer is going to have a pretty hefty bill. Space out inventory purchases. That way, payoff dates are spaced appropriately for dealership cash flow, just in case inventory hasn’t sold before payoff time.

Used together, these best practices allow dealers to purchase the inventory needed, provide incentive to profit and allow for manageable floor plan payments.

Auto Floor Plans vs Cash: What Cash Buyers Lose When Buying Inventory

auto floor plans vs cash

Every dealer has a preference on what type of auto floor plans vs cashcapital they use to purchase inventory. Each dealer has the choice to use either the cash they have on hand, to use auto floor plans, or use the loans they’ve secured from banks and other financial institutions. Each form of capital comes with its own risks and rewards. However, dealers that primarily use cash could be missing out on some of the benefits an auto floor plan can provide.

The Cash Conundrum
Let’s say someone asks a dealer to invest $10,000, and also makes the personal guarantee that the money invested today will be worth $50 less the second the money is deposited. Of course, a discerning dealer would think twice about making that investment. However, what some dealers don’t realize is taking that deal is exactly what happens when they pay cash for their inventory.

From the beginning of the inventory / retail stocking process, dealers are utilizing capital. At auction, the reason a dealer will win a bid is simply because they were willing to pay more than anyone else. This is of course, a calculated risk. Often, the dealer’s sale of their auction purchase will result in a profit. However, there is always the possibility that the purchased car won’t sell.

Any car purchased will eventually depreciate in value. The longer a car sits on a lot, the more that car will depreciate. Purchasing a vehicle with cash means that the money initially spent on the car will also depreciate, and the vehicle will eventually be valued at less than the dealer’s initial investment. In addition, purchasing inventory with cash will limit a dealer’s options to keep their money working for the business.

If a car sits on a dealer’s lot beyond 60 days, the dealer will likely be pretty motivated to sell that particular vehicle. However, at this point, the dealer’s cash is now tied up in the vehicle. Purchasing another vehicle isn’t a possibility. In addition, the dealer isn’t likely to earn back their initial investment if they try to re-sell the vehicle at auction. When the dealer first won the unit at auction, they were already willing to pay more than anyone else.

The time the vehicle spent on the lot didn’t increase the vehicle’s value either, so the dealer is already facing a loss. It also doesn’t help that the dealer doesn’t have time to wait for a buyer. In order to purchase another car that is a better position to sell, a dealer needs cash and they needed it yesterday.

But doesn’t the same thing happen when using auto floor plans?
Technically, that same vehicle will still depreciate whether or not a dealer uses cash or a floor plan. However, when a dealer uses a floor plan they have more options available than if they paid cash. With a floor plan, a dealer can pay a small amount of the car off at a time, they can extend a vehicle, or they can buy down their depreciation over a period of time. With a floor plan, a dealer has extra capital on hand to ensure their ability to purchase more inventory.

At NextGear Capital we recommend a dealer’s budget for stocking inventory to be a 70/30 mix of their floor plan and cash, respectively. Using a floor plan to stock inventory ensures a dealer can buy enough vehicles to meet the needs of their market, and the cash on hand ensures a dealer can pay for their expenses.

Buying inventory with cash can limit the actions a dealer can take to help their dealership profit and succeed. However, auto floor plans give a dealership the capital and flexibility needed to purchase the desired inventory for their market.

Basic Factors That Can Make or Break Used Car Dealership Success

Drawing customers to your used car dealership used car dealership successand keeping them engaged relies on a number of factors. How effective were your marketing efforts? What inventory do you have in stock? Is the vehicle priced appropriately for the buyer? Beyond these few questions, there are often overlooked factors that go beyond your dealership’s vehicle purchasing experience that may be preventing you from leaving a positive impression on customers and hurting your chances at growing your customer base.

Keep your inventory aligned with the wants and needs of the market
Stocking the inventory your market wants is a somewhat-invisible, but important component of used car dealership success. Staying in tune with what your customers are purchasing allows a dealer to pivot inventory quickly and seamlessly, and ensure that your lot is stocked with the vehicles your customers are looking to buy. If you don’t have the right vehicles to capture your customer’s interest, they are likely to move on to another used car dealership. The different wants and needs of your market will dictate the way your dealership spends its time and resources on inventory.

Minimize hand-offs to multiple staff members
Potential buyers don’t like to repeat themselves to multiple staff members. In addition, it can be frustrating or confusing for a potential buyer to get passed around from department to department. Take note of your current sales process. How many times is a customer passed from one department to another? Can you reduce that number? A customer most likely won’t notice if they stick with one or two different staff members. However, if they get shuffled around to more it is possible that they’ll get frustrated with the sales process and possibly leave.

Keep your dealership presentable
Ensuring that your dealership is clean and presentable can change a customer’s entire perception of your dealership. While it is perhaps a small and basic part of running a dealership, it can set the tone and leave a lasting impression on customers. A customer won’t notice a clean office or clean inventory, but they will notice an unkempt office and muddy vehicles. Clean cars with fresh interiors will always leave a good impression. In addition, visible pricing and a well lit lot ensures that customers can easily navigate your dealership and their potential vehicle options within their price range.

These overlooked, yet noticeable, components of a dealership can make or break a customer’s perception of your lot, and could potentially be the difference between a one-time customer or a repeat customer.

Seasonal Wholesale Prices Drive Dealers to Stock Up

NextGear Capital and Manheim Offerings Compel Clients to Maximize Floor Plan Purchasing Power

Savvy dealers tracking seasonal wholesale prices and readying for buyers who use their tax returns to purchase vehicles are stocking up on inventory now. To do so, many are turning to NextGear Capital and Manheim to maximize their floor plan purchasing power.

According to Cox Automotive Chief Economist Tom Webb, the Manheim Index — which tracks monthly wholesale prices back to 1997 — reveals a “seasonal pattern with low points in October and November and price increases in January before peaking in April.”

Dealers utilizing a NextGear Capital line of credit can purchase inventory and take advantage of the extended terms. The flexible repayment period enables clients to make vehicle payments later, maintain cash reserves and purchase stock before seasonal price increases occur.

To ease dealers’ concerns about buying too early, Joe Lescota, director of dealer development, National Independent Automobile Dealers Association, suggests, “Dealers can take advantage of floor plan services, such as NextGear Capital, to prepare for the busier time of the year, as well as seek alliances with those who can help them make better buying decisions.”

Lescota, drawing on his 25+ years of industry experience, encourages dealers to learn about pricing in their individual markets before purchasing vehicles, in anticipation of tax season or any time of the year. “Resources — such as vAuto, Polk Reports and Autotrader – can identify which units turn in the shortest period of time in their area, as well as which flooring units have the highest gross earning potential.”

Manheim also provides acquisition resources to help dealers improve vehicle procurement and identify optimal stock to offer on their lots. Its team of professional buyers enable clients to maximize value during every step of the car buying process – from development of a tailored purchasing plan to vehicle acquisition to management of back-end processes after stock is obtained. These services enhance dealers’ productivity and free up their time to concentrate on customer-facing activities, while reducing risk and costs associated with in-house acquisitions, such as travel and staffing.

Developing An Exit Strategy for Aged Used Inventory

Aged Used InventoryAfter buying a vehicle at auction, do you ever think to yourself, “What am I going to do with this unit if it doesn’t sell fast enough?” If you don’t, you might be hurting your own chances at profitability.

Holding on to aged used inventory can tie up your cash flow because you are holding on to a depreciating asset. Disposing of an older vehicle can help to free up the cash flow you need to purchase a unit more likely to sell. Associating an aged used inventory exit strategy to each unit mitigates against aged inventory and helps to create an efficient ecosystem that allows you to maximize dealership profitability.

While every exit strategy will differ from dealer to dealer, the three following questions are designed to help guide your thinking when developing your own aged inventory exit strategy.

Do you have a strategy for different inventory age points?
Developing a process or an exit strategy for vehicles at 15, 30, 45 and 60 days gives you a solid idea of what to do at any point in a vehicle’s lifecycle on your lot. For example, for a unit at 30 days part of your plan could be to detail some of your 30 day inventory, relocate units to another part of your lot and reevaluate your pricing.

What is your unit breakeven point?
Every dealer needs to decide for themselves what each unit’s breakeven point is. While holding on to inventory for 60 days is a typical industry standard, often by the time you get to that 60 day point, your unit could be on the edge of a profit or loss. A comprehensive exit strategy gives an overall structure to your inventory, but also allows for flexibility if needed.

Where can you dispose of aged inventory?
Keep note of the different places you source your inventory and the different places you can also get rid of aged used inventory. Some solid places to dispose of inventory includes auctions, exchanging inventory with your local network, Craigslist, Ebay, Autotrader, Cars.com, OVE, and SmartAuction. If you can also match your inventory to the sources that would be most likely to give you the best price for your units, you’ll put yourself in a better position to get rid of your aged inventory.

Developing an exit strategy for aged used inventory won’t be a simple task. However, the sooner a plan is developed for your aged inventory, the sooner you can free up capital and start improving your profitability.

Three Floor Plan Finance Formulas Every Dealer Should Know

Owning and operating a profitable dealership withfloor plan finance formulas
efficient cash flow all comes down to balancing that cash flow with current inventory. So how do you make sure you are balancing that money and inventory effectively? Knowing the answers to the following three floor plan finance formulas and balancing those numbers with current inventory month to month will help ensure your dealership is effectively managing your current inventory and cash flow. Take a look at these formulas, and see how your dealership lines up.

How much inventory should a dealer stock?
The answer to this question varies based on realistic, monthly desired sales numbers and turn times for units. For example, let’s say a dealer wanted to sell 60 units per month. Assuming the average turn time for vehicles on a dealer’s lot is 40 days, a dealer would turn their lot 9 times over the course of 12 months. This floor plan finance formula is essentially the following: monthly desired sales divided by how many times a lot is turned per year, multiplied by the number of months in a year.

Monthly Desired Sales    60
Total Yearly Lot Turn (Assuming a 40 day average turn time)    ÷ 9
Months in the Year    X 12
Optimal Inventory Stocking Number    = 80 Units

 

In this situation, the dealer would need to stock 80 units based on 60 desired sales per month and a 40 day average turn time.

Let’s try another example. This time, instead of an average lot turn time of 40 days, the dealer turns his lot only 6 times a year, or has an average lot turn time of 60 days. For simplicity, the same number of monthly desired sales will be used. The only change has been the total yearly lot turn.

Monthly Desired Sales    60
Total Yearly Lot Turn (Assuming a 60 day average turn time)    ÷ 6
Months in the Year    X 12
Optimal Inventory Stocking Number    = 120 Units

 

With an average 60 day lot turn, the dealer would need to stock 120 units.

How many sales should a dealer be making based on the units they have in stock
Knowing the target sales number a dealership should be working towards based on current inventory can help determine if a dealer is overstocked, or if the number of desired sales per month is realistic. Let’s say a dealer has 108 units in stock. Again, let’s assume a unit turn time of approximately 40 days, or a total lot turn over of 9 times over the course of 12 months. To figure out the number of desired sales, multiply the number of units in stock by 9, then divide that sum by the number of months in a year.

Units in Stock    108
Total Yearly Lot Turn (Assuming a 40 day average turn time)    X 9
Months in the Year    ÷ 12
Optimal Number of Sales Per Month    = 81 Sales

 

Based on the total number of units this particular dealer has in stock, they should be aiming to make 81 vehicle sales per month.

Let’s try this formula again with a 60 day average turn time and the same number of units in stock. To figure out the number of desired sales, multiply the number of units in stock by 6 (to account for the 60 day average turn time), then divide that sum by the number of months in a year.

Units in Stock    108
Total Yearly Lot Turn (Assuming a 60 day average turn time)    X 6
Months in the Year    ÷ 12
Optimal Number of Sales Per Month    = 54 Sales

 

With 108 units in current inventory and a 60 day average lot turn time, this dealer should aim to make 54 sales per month.

What is the unit holding cost per day?
Every day that a unit sits on a lot, it costs a dealer money. Figuring out the holding cost per day allows dealers to determine what units need to be turned quickly, what units are able to sit for a while, or what units a dealer might need to consider selling at auction. This floor plan finance formula will require a dealer to have a good handle on total dealership expenses and inventory for the entire month. First, a dealer would need to figure out their monthly holding cost. To figure this out, a dealer would subtract their monthly selling expenses from their total expenses for the month. A dealer’s monthly selling expenses are variable monthly expenses that are not charged to the customer. These monthly selling expenses include items such as commissions, advertising, salaries, demo expenses and fuel. Let’s say a dealer’s total monthly expenses are $148,485, and their monthly selling expenses are $57,437.

Total Monthly Expenses    $148,485
Monthly Selling Expenses    – $57,437
Monthly Holding Cost    = $91,048

 

Dealers can determine the monthly holding cost per unit once the monthly holding cost is figured out. The monthly holding cost per unit is found by dividing the monthly holding cost by the number of retail units in stock for the month. Let’s say this month a dealer had 85 units in stock.

Monthly Holding Cost    $91,048
Units In Stock This Month    ÷ 85 Units
Monthly Holding Cost Per Unit    = $1071.15

 

Once the monthly holding cost per unit is figured out, it’s pretty simple to determine the holding cost per unit per day by dividing the monthly holding cost per unit by the number of selling days in a particular month. Selling days are the days that the dealership is open and available to make a sale. For example, let’s say that for a particular month there are 24 selling days available.

Monthly Holding Cost Per Unit    $1071.15
Selling Days Available    ÷ 24 Units
Holding Cost Per Unit Per Day    = $44.63

 

The holding cost per unit per day is a useful metric that can help a dealer keep their inventory balanced as well as determine how quickly a dealer might need to turn a unit.

Why do these formulas matter, and what does turn time have to do with anything?
These floor plan finance formulas incorporated with a dealer’s turn time can help to make or break a dealership’s profitability.

Let’s say a dealer makes a profit of $3000 per car sold. If this dealer’s holding cost per day per unit is $44.63 and their turn time to sell a car is 60 days, they will spend $2677 of their profit holding on to a non-selling car.

What if a competing dealer’s turn time is 40 days? If everything else stays the same—the dealer’s $3000 profit per car and the cost per day per unit remains $44.63—but only the turn time changes, the competing dealer will only spend $1785 out of $3000 to sell the same unit.

A longer turn time for inventory eats into a dealer’s cash flow. A general rule of thumb is that once a unit moves past the 60 day point dealers should start thinking about what might become frozen capital, or a non-adequate return on investment. While every individual dealer will have to decide on their optimal turn time, break even point and subsequent exit strategy for inventory that isn’t sold within a desirable time period.

In any case, the math doesn’t lie. Quicker turn times not only increase profitability, but also help to keep cash flowing.

How does your dealership line up?
Using these floor plan finance formulas, you can gain a better understanding of the monthly balance of your inventory and cash flow. Are the dealership’s sales goals realistic? Is the lot overstocked? Is the holding cost per unit per day reasonable? Working through these floor plan finance formulas periodically and monitoring these three metrics is essential to ensuring the overall balance of inventory and cash flow in your dealership.

 

NextGear Capital Enters Agreement with CarMax Auctions

man on car lot pointing out cars that used floor plan financing for used car dealersNextGear Capital has announced a new agreement with CarMax. The agreement with CarMax, the nation’s largest retailer of used vehicles, will allow dealers to use their NextGear Capital lines of credit at all 68 CarMax auction locations.

NextGear Capital floor plans are currently accepted at over 1,000 live and online auctions, and may be used with inventory sources such as trade-ins, off street purchases and loan payoffs. It is anticipated that NextGear Capital floor plans will be accepted at all CarMax auction locations as of August 8, 2016.

“We recognize CarMax as a company with high integrity and a reputation built on strong values and exceptional customer service. NextGear Capital shares these values and service-centric approach to business and is pleased to join efforts with CarMax in providing additional value to our dealers. We are committed to providing our dealers the tools necessary to be successful. The ability for dealers to utilize their NextGear Capital lines of credit at CarMax will enable greater access in sourcing inventory,” said Randy Dohse, senior vice president of sales and operations at NextGear Capital.

The Distinction of a NextGear Capital Floor Plan

Dealer using First Gear

Every dealership is unique, with its own needs, priorities and goals. So when it comes time to seek inventory financing, you need a floor plan provider that understands your dealership’s goals and can create a flexible plan right for you. At NextGear Capital, we know that being able to procure vehicles from multiple sources, at your convenience, is crucial to your dealership’s success. With a NextGear Capital floor plan, your line of credit is accepted at over 1,000 live and online auctions, in addition to inventory sources such as trade-ins, off-street purchases and loan payoffs. And to make sure you have the buying power you need right at your fingertips, NextGear Capital offers 24/7 account access, through our mobile platform myNextGear. With myNextGear, dealers can floor units, make payments and view titles all from their hand-held device.

Flexible Terms to Help Increase Your Buying Power

Inventory Financing, often referred to as floor planning, provides you with the necessary cash flow to run your business without stretching to cover operational expenses. A NextGear Capital floor plan gives you the buying power you need for added inventory on your lot, increasing revenue while keeping cash on hand for other business expenses.

NextGear Capital is equipped to offer flexible terms and competitive pricing along with solutions tailored to your unique business needs. While the avenue in which you source your vehicles may change, your inventory finance company should be your rock. Not only should your inventory finance provider understand the nature of your business and the flexibility you need, but it should mirror that flexibility in its relationship with you. This includes providing insight on potential market opportunities for your business, improving income opportunities and counseling you on the latest and greatest industry tools. NextGear Capital’s local representatives are in the field every day doing just that.


Industry Expertise that Benefits Your Business

NextGear Capital’s leadership team, boasting over 100 combined years of auto financing experience, has positioned the our company as one of the foremost thought leaders in the industry. A NextGear Capital floor plan is more than a flexible finance solution, it is also backed by local representatives and a knowledgeable support staff, all dedicated to your dealership’s growth and success. NextGear Capital is committed to going above and beyond what you would expect from a financial provider. Darren Vivolo, Owner of Bayshore Automotive, put it best saying, “NextGear Capital is like having another staff of employees.” The support team at NextGear Capital makes time to understand what is driving your dealership’s business and what matters most to you.


Cutting-edge Technology to Simplify Buying and Selling Inventory

NextGear Capital’s unparalleled speed of service and real-time technology offers dealer account access from virtually anywhere – online, on the go and on the phone. Advances in technology – such as the use of mobile devices – have made floor planning an easier to use and more powerful tool for dealers by saving time and simplifying the process of buying and selling inventory. With this rise in technology, you now have the ability to browse and purchase inventory from the comfort of your desk or home, meaning you can conduct business on your own terms.


Access to the Industry’s Leading Network of Brands

As a Cox Automotive brand, NextGear Capital is part of the strongest portfolio in the industry, made up of more than 20 brands that together provide end-to-end solutions for dealers like you. Cox Automotive is a leading provider of products and services spanning the automotive ecosystem worldwide. With more than 40,000 clients, Cox Automotive strives to better understand clients’ needs in order to create efficiencies and alleviate challenges, providing a wealth of resources to its customers. When you choose a NextGear Capital floor plan, you gain access to the industry’s leading network of brands, a power backing which can give your dealership a valuable, unique advantage.

Top 5 Components of Customer Service

Customer service team in a row
Customer service plays an integral part in the success of any organization. According to a recent NewVoiceMedia Study, U.S. companies lose $41 billion a year due to poor customer service. At NextGear Capital, we understand the importance of and place a high value on providing customers with the best customer service.

Here are the top five components that make up great customer service.

1. Overall Customer Experience
Individuals have one main purpose for contacting a customer service center: to resolve an issue. No matter what that issue is – from making a payment to disputing a late fee – it’s imperative that the customer receives an experience that promotes trust and a feeling that the person on the other line truly cares about the issue at hand.

2. Top-tier knowledge
When a customer calls in to a customer service center, they want to speak to someone that is knowledgeable about their industry. What’s more, customers want someone that understands the actual needs of their specific business, as no two customers are the same. Two ways that NextGear Capital accomplishes this is through extensive training of our employees on the ins and outs of the industry. Additionally, our technology solutions allow our representatives to pull up information quickly so to speak accurately to the account.

3. Friendliness
Mother Teresa is quoted as saying “Kind words can be short and easy to speak, but their echoes are truly endless.” For customer service employees, it’s important to maintain a friendly and calm attitude, no matter the temperature of the customer. One way to accomplish this is through positive language. Phrases such as “Happy to help” or “Great question, let me find that out for you” promote a friendly, caring attitude, which can go a long way in creating real customer engagement.

4. Promptness
We live in a day and age where fast and speedy service are what separate the top companies from the rest. In the automotive remarketing industry, timely service is essential for dealers who are constantly moving inventory. To-date this year, 90 percent of NextGear Capital customers have had their calls answered in 30 seconds or less – a testament to our understanding of the need for prompt service.

5. First-call resolution
According to the SQM Group, a 1% improvement in first-call response equates to $276,000 in annual operational savings for the average call center. This shows that first-call resolution is critical for companies when it comes to retaining current customers. Beyond increased customer satisfaction, first call resolution also aids organization’s by reducing operating costs through decreasing the number of customers that need to call back.

Top 5 Floor Planning Mistakes by Dealers

When it comes down to it, floor planning in its essence is a very basic process: you open a line of credit, purchase inventory with said credit, sell inventory and pay back the loan. Intertwined amongst the basics are a lot of moving parts that at times can cause complications. While there are many variables out of the dealer’s control, from the economy to auction prices, there are a few that are essential in driving success. Regarding tangibles that dealers can control around floor planning, it’s important to understand the most common mistakes made.

Here are the top five mistakes dealers make when it comes to floor planning.

1. Mismanaging cash flow
There’s an old saying that goes “cash is king.” That’s true whether you’re running a deli or buying and selling in the automotive industry. Cash flow is the number one key to a successful business. It can positively and negatively affect everything from advertising and staffing to acquiring business tools such as vAuto’s Auction Genius. And what’s more, it certainly can impact your relationship with creditors.

One of the benefits of floor planning is it frees up cash for other expenses and business investments. However, a common mistake is not taking into account that many of these bills mature at the same time. Improper cash management may cause dealers to get into a borrowing cycle that provides little wiggle room and thus creates a shell game of money cash from one debt to another constantly.

2. Over-extending
The automotive industry is full of companies that provide lines of credit for purchasing inventory; in fact, there are nearly 200 in the U.S. currently. It’s important to manage your line of credit so that you can grow your business responsibly. One scenario that happens far too often is dealers over-extending themselves when it comes to inventory. When you purchase more inventory than you can sell, you put yourself at risk if you can’t make the payments.

Moral of the story: Just because you are approved for a $250,000 line of credit doesn’t mean you have to go out and spend it all at the next auction. Buy in proportion to your sales figures.

3. Communicate Inadequately with Floor Plan Provider
No business likes surprises, especially finance companies. You should strive to keep your floor plan provider abreast of any changes, updates or issues regarding your business. Have a payment you won’t be able to make on time? If you have a payment that you know in advance you won’t be able to make, let them know as soon as possible. By being proactive and honest, you stand a better chance of your floor plan provider working with you to help resolve issues.

4. Raise Red Flags
Most floor plan providers keep an eagle eye on all accounts in search of red flags that alert them to issues with dealers. There are three specific red flags that your floor plan company is watching for: NSF’s, Collateral Audits and Turn-times.

NSFs
Insufficient funds (or NSFs) are directly correlated to points #1 and #2 above. When you can’t make your payments on time, or your checks/ACH’s bounce, rest assured that your floor plan provider is now watching your account closely. This is one of the biggest indicators that there is an issue with how you’re managing your account and ultimately how the creditor views their chances of being repaid. This puts the floor plan provider at risk as they advanced funds on a certain piece of collateral.

Collateral Audits
Your floor plan company is a collateral-based lender. And that collateral is the physical inventory – not the title of the vehicle. As with any lender, it’s important that the collateral can be physically verified based on the agreed terms, usually monthly. When your floor plan provider can’t verify inventory, another flag is raised. If you need to move inventory to another location for a big tent sale or to an auction, let your floor plan provider know.

Turn Times
The NIADA and NADA have done extensive studies that show used vehicles should be turned every 45 days, as your ability to make money on aged inventory goes down over time. This may not fit all dealer’s business models; however, your floor plan company is going to get nervous if they see a vehicle on your lot for an extended period. Many times dealers hold inventory “looking for the right buyer” instead of cutting their loss and moving the unit at an auction. This allows them to acquire fresh inventory to market to customers.

5. Improperly Manage Account
When you open an account with a floor plan provider, it’s imperative that you understand the exact expectations the company will be holding you to. Find out when payments are due and what different tools are at your disposal. By taking advantage of these resources, such as valuation tools or payment schedules, you can make it easier on yourself when it comes to running your business.

Another great source is your floor plan or auction representative. These individuals meet regularly with other businesses and sister companies, so they are abreast on what’s happening in the industry and can provide some great insight.