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Best practices for cash management

November 17, 2010

One of the biggest challenges dealers face is effectively managing cash. This month’s NADA Management Education article offers some best practices to help you control your cash flow and maintain your dealership’s financial health. 

The key element to cash flow is timing. If you receive a payment of a contract in transit before you have to pay the floor plan, lien payoff on a trade-in, or sales commission, then your cash flow is OK.

 

Unfortunately, such timing does not always occur, and it may be compounded by such circumstances as a customer using a trade-in to pay for a portion of his vehicle purchase. That trade-in can stay in your inventory for months, reducing your cash flow. Creating best practices and policies will enable you to correct the issues that harm your cash flow. 

There are best practices to get your cash into the bank faster. They might not work in every dealership, and they might require additional training and policies to be put in place. But experience has proved that many of these solutions are effective in turning your receivables and inventories into cash faster.

 

  • Have the F&I office pull and submit the contracts. 
  • Use a Post Office box for receiving checks in the mail. Receipt them in and deposit the same day to a deposit clearing account. Have the clerks distribute the payments to the various accounts from the receipt and check stub instead of holding the checks.
  • Have a policy for used vehicles that you will carry in stock by year, make, and model. If a unit comes into stock outside of that policy, wholesale immediately and adjust the Actual Cash Value (ACV) of the car deal that took it in trade. 
  • Use sweep accounts to move excess cash from your checking accounts into investment accounts and include the payroll account to earn on that account’s "float."
  • Issue a daily report of all Contracts in Transit and Vehicle Receivables to the sales department. Don’t wait for accounts to become past due to collect. 
  • Issue a weekly report of all Accounts Receivable and Warranty Claims to the service and parts managers. The best person to collect the funds is the department manager who created the receivable.

 

This article is adapted from NADA Management Education’s "A Dealer Guide to Cash Flow Management" (BM33). The guide, which explains and defines cash flow, and provides worksheets you can use to help manage your dealership’s cash flow, can be ordered online at www.nada.org/mecatalog or by calling the NADA at 800-252-NADA, ext. 2.

 

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