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4 benefits of floorplan financing over cash

Independent dealers consider the benefits of a floorplan over using cash.

For many independent dealers, cash is still king when it comes to purchasing auto inventory. But it doesn’t have to be. For dealers, financing inventory purchases instead of only paying in cash can offer a number of benefits. Let’s dive a little deeper into what those benefits are.

1. Grow your dealership’s inventory faster

In order to grow your business, you need to sell more vehicles—it’s as simple as that. But to sell more, you need to have more. That means growing your on-lot inventory.

Inventory purchasing with cash can be difficult if you don’t already have huge cash reserves on hand, and if you’re in a growth stage, that’s unlikely. The cycle of receiving cash for a sale and needing it to replenish your lot don’t always sync up. It’s a bit of a catch-22—you need inventory to get the cash to buy inventory—but only if you’re relying only on cash for auction purchases.

Floorplan financing increases your buying power at auction, both in-lane and online. It expands the pool of money available for purchases beyond the cash you have on hand. Are prices looking particularly good on sale day? With a floorplan (or “floor plan,” as some others around the industry might call it) line of credit you can keep placing bids, purchase inventory in greater volume to grow your on-lot availability, and then pay the vehicles off after selling them. With the fees and interest you may spend a bit more in total than you would by paying in cash. But the additional profit you make from moving more vehicles through your lot is the growth engine you need.

2. Improve your dealership’s cash flow

When all the cash you bring in from selling a vehicle has to go toward purchasing more inventory to sell, it makes it difficult to invest in other areas of your dealership that may require financing. Things like facility upgrades and maintenance or even payroll can fall behind when there isn’t enough cash on hand to cover everything.

Floorplan financing for inventory purchases allows a dealer to divert on-hand cash away from purchasing vehicles toward non-inventory expenses. That ability to diversify spending means that you can maintain the upkeep of your business without interrupting your inventory growth.

3. Make the inventory purchasing process easier

At the end of an auto auction, when you’ve secured the vehicles you want and you’re settling up, cash payments take time. Processing your purchases takes longer with additional paperwork to fill out, and many auctions assess a fee for cash payments. Essentially, you’re paying for the privilege of wasting your own time.

On the other hand, many auctions have close relationships with auto finance companies like AFC, which means that with a dealer floorplan, you can move through the checkout process much more quickly. And, if you run into any issues, your financing provider can function as an intermediary to help sort things out, rather than dealing with it alone.

Also, if you’re buying outside of the auction, your dealer floorplan can help there as well. If you find better deals on the street through customer trades or a trade with another dealer, your non-auction purchases can also be floored, so you won’t miss a great deal because cash flow is tight.

If you’re wary about taking a trade that still has a balance with a lienholder, some floorplan providers like AFC can manage the lienholder payoff including title followups and title receiving. This back office service allows dealers to spend less time dealing with administrative work. Cash can’t do that for you.

4. Find automotive financial services to fit your needs

Cash can’t adapt to different situations. But an auto finance company will offer a range of financial options to better fit a dealer’s needs.

For example, if you’re purchasing a lot of high-demand vehicles and selling them quickly, you may want a short-term floorplan to make sure fees stay manageable. If you’re purchasing a lot from salvage auctions and you need to recondition your inventory before selling, turn time can get long and you might want a longer term to match. If you deal in specialty vehicles like powersports or RVs, you’ll find credit lines designed to cater to those unique needs.

And if you’re doing all of the above? No worries—you’re not restricted to a single option, you can have different credit lines for different goals.

Every dealer is different. A good financing partner knows this, and offers flexible floorplans and services according to what dealers really need.

Floorplan financing helps dealerships grow and thrive

A dealer floorplan offers a number of unique benefits that you can’t get from cash. Change isn’t comfortable, but switching from cash to floorplan financing could be the growth catalyst you’ve been looking for.

Disclaimer: Terms of AFC floorplan financing are subject to a final written agreement acceptable with AFC. AFC does not guarantee any results for floorplan financing and examples are for illustrative purposes only. Dealers should consult their own advisors to make independent business decisions regarding floorplan financing.