Do You Have Good Cash Flow or a Sinking Feeling?

By Steve Lane

Are you mak­ing sales and show­ing a profit—but also show­ing a close-to-zero bank bal­ance? If you don’t have good cash flow and you think you’re in chop­py finan­cial waters, then some­where in the store there’s a Bermu­da tri­an­gle swal­low­ing up cash and threat­en­ing to sink the deal­er­ship.

One rea­son for a cash flow crunch could be con­tracts in tran­sit that take too long to be fund­ed. Here are some guide­lines from NADA Uni­ver­si­ty.

  • For con­ven­tion­al busi­ness on A and B paper, it should take three days or less to be fund­ed by the finan­cial insti­tu­tion. You need to ensure that your finance depart­ment meets the three-day aging cri­te­ria.
  • If you’re doing spe­cial finance for cred­it-chal­lenged cus­tomers, it takes longer. We have 12-day aging cri­te­ria in those cas­es because there are more stip­u­la­tions to be met. Make sure that your finance depart­ment meets the 12-day mark on sec­ondary financ­ing.
  • Next, put dif­fer­ent financ­ing into sep­a­rate accounts. We rec­om­mend that deal­ers sched­ule con­ven­tion­al and spe­cial finance into sep­a­rate accounts so they can track each receiv­able bal­ance that’s wait­ing for fund­ing.
  • Con­tracts reject­ed because of miss­ing infor­ma­tion present anoth­er prob­lem. Miss­ing sig­na­tures, driver’s license copy, proof of insur­ance, or proof of income—these are all sim­ple mis­takes that cause delays. Now we have to get the cus­tomer back in and we’ve added more days to the process.

A solu­tion we dis­cuss in class: tying pay plans to get­ting con­tracts done right the first time.

Instruc­tor Steve Lane teach­es Finan­cial Man­age­ment in week 1 of 6 in the NADA Acad­e­my pro­gram. Reach him at [email protected] or vis­it NADA Acad­e­my to down­load the sched­ule and appli­ca­tions for all pro­grams. To find out how your dealership‘s com­pen­sa­tion stacks up to the com­pe­ti­tion, get your copy of the 2012 Deal­er­ship Work­force Study Indus­try Report! Log in to, go to Resource Tool­box, and click to pur­chase (requires GM/Exec or Deal­er access lev­el). The Indus­try Report is com­pli­men­ta­ry to Deal­er­ship Work­force Study par­tic­i­pants.





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