What is the purpose of Floor Plan Management?
It is common for a dealership to purchase units from their distributors but instead of paying for them outright, the invoice for the unit is paid for by a flooring company. Now the dealership owes the money to the flooring company.
At a minimum, the dealership must pay off the floor plan company whenever they sell a unit because the collateral for the invoice is no longer in their possession. Typically a dealership will have a relationship with only a single flooring company but the feature implemented accommodates a scenario where they work with more than one flooring company.
At random intervals the floor plan company will perform unscheduled and unannounced inspections of the inventory units to ensure that all units which they are holding the paper for can be physically accounted for in the dealerships inventory.
Typically on a monthly basis the flooring company will provide the store with a statement detailing the new interest charges and any required curtailment payments for each unit they are holding the paper for.
What are Floor Plan Terms?
The floor plan company will typically have an agreement with the dealership as to what the terms are for them holding the paper for units that are in the dealerships inventory.
These terms typically include things such as:
Payment is due in full when unit is sold by the dealership
What monthly interest will be payable by the dealership
Consideration for a “free floor plan” period ie: interest free for the first X days after the invoice date
Curtailments - these are required partial payments of the invoice. Typically these are a percentage of the original invoice which the dealership must pay every month starting X number of days or months after the date of the invoice
They typically have a single defined set of terms but can occasionally offer special rates or have different terms for items like used units.
What are Floor Plan Statements?
Usually on a monthly basis the floor plan company will provide the dealership with a statement which contains a listing of all units which the dealership owes them money for. For each unit listed on this statement you will probably find the following information:
Unit identification details
Invoice number, Invoice date, Original invoice total
Total previous interest costs incurred on the unit
New interest cost incurred on the unit since the last statement
Amount due now - which includes both the new interest cost as well as any scheduled curtailment payments
As a result of this statement the dealership will make a payment to the floor plan company via their accounting application for any new interest charges incurred as well as any curtailment payments that are due.
Floor planning used inventory
Some floor plan companies allow a dealership to include their used unit inventory on their floor plan. Basically the floor plan company agrees to a value for a used unit and provides the dealership with those funds. In turn the dealership has an outstanding invoice with the floor plan company which may have its own set of terms for things such as interest rates and curtailment payments.
What does the store need to be able to track?
From the dealerships point of view they need to be able easily track all units which are held with the floor plan company including:
Current status and location of all floored units
The original invoice number and invoice total
Current balance owing on that invoice
What the terms are of the floor plan on each unit ie: interest rate, free floor plan period, curtailment payments schedule
Total amount of interest charges that has been incurred and paid for the floor plan units
What functionality does the store need in their system?
The store needs to be able to:
Order/receive units from their distributor and have the invoice for those units posted to the A/P under the Flooring Company instead of the vendor the unit was purchased from
Assign floor plan terms to each floored unit
Process flooring company statements to record interest incurred against units
Track floor plan interest costs per unit
Have the ability to either directly expense interest costs or have them accrued as part of the inventory valuation
Ability to add other units in their inventory to a floor plan ie: used units