The Importance of Unexpected Assets in Floor Plan Financing: What Lenders Need to Know
For floor plan funders, auditing dealer lots to check the presence of funded assets is the norm. Whether it’s done by a manual, resource-intensive process, or using digital dealer self-auditing, a periodic review of assets is the standard practice.
However, the focus is on checking the assets the funder has on funding. But what about those ‘unexpected assets’ that are present at the audit but are not recorded on the asset register?
The Benefits of Unexpected Assets in Floor Plan Financing
Unexpected assets are vehicles that are found when auditing but are not registered and recorded by the funder. Whilst easily dismissed as not part of the funding portfolio, taking a closer look here can bring opportunities for the floor plan funder.
As most dealers have more than one source of funding, funders expect that there are assets onsite that they are not funding, but if they can be easily identified, there is significant intel to be gained in tracking these.
They consist of two types of assets: those that were previously funded by the bank but have been settled, and those that were never funded by the bank.
Assets that have been settled but are still onsite present an opportunity for a follow-on funding line or increased timescale on the existing credit line.
Assets that have never been funded previously by the bank again present an opportunity to increase credit lines and strengthen the relationship with the dealer.
Knowing the length of time the assets remain or are present is critical to this intel and can be achieved with frequent audits.
Most risk managers are focused on managing their risk, not extending it; that’s the job of the commercial folks. But utilising intel from the risk management process can deliver some hidden gems. It may seem like hard work for a risk manager already struggling to cover the existing assets on funding, and some methodologies are better than others. While ignoring unexpected assets in floor plan financing can lead to missed opportunities for funding and growth, they can also be a useful warning indicator.
Being able to monitor these vehicles on a regular basis will give additional insight into vehicle turnover rates, which might flag if a dealer is starting to experience a slowdown in trade. And the expanded information will give a more holistic view of the dealership’s trading position.
This video highlights an example of the potential of getting a handle on unexpected assets brings to dealerships
Best Practices for Identifying and Managing ‘Unexpected Assets’ in Floor Plan Financing
Best practices for identifying and managing unexpected assets in floor plan financing include regular auditing and inspection of inventory, effective use of vehicle identification numbers (VINs) and legal documentation, and collaboration between lenders and dealerships.
Dealer self-auditing tools support more frequent auditing that is faster and more convenient to conduct, and use powerful technology to support the data processing. As a result, reporting is more timely and meaningful, supporting more effective management decisions.
Unexpected assets in floor plan financing can present opportunities for funders in several ways and they should pay close attention to unexpected assets and use them as a useful tool and source of information.
Discover Our Digital Vehicle Auditing Tool
Learn more about how our digital dealer self-auditing can help streamline your auditing process here.