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 www.nadauniversity.com, 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.