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. Raising 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
Used vehicles should be turned every 45 days because your ability to make money on aged inventory goes down over time. This may not fit every dealer’s business model, but 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 Managing the Floor Plan Account
When you open an account with a floor plan provider, it’s important to understand the exact expectations the company will be holding you to. Find out when payments are due and what account and inventory management 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 resource is your floor plan or auction representative. These professionals meet regularly with other businesses and sister companies, so they know what’s happening in the industry and can provide insight on how to best use floor-planning to your advantage.
By Chris Miller, Director - Strategic Initiatives for NextGear Capital.TM