Auto Dealers Can Fill Gaps Between Inventory and Collections with Smart Debt Management

In the life cycle of any auto dealership, there will be times when cash flow is tight. Buy here pay here dealers in particular face complexity to ensure enough inventory is on hand to attract buyers — and offset that investment with a healthy flow through collections and debt management. This balance is never perfect. … Continue reading Auto Dealers Can Fill Gaps Between Inventory and Collections with Smart Debt Management

Fair Market Value Test Can Render Related Finance Companies Invalid

  Related finance companies have been around for a long time…and so have the IRS guidelines for valid RFCs that auto dealerships must follow for tax compliance. Like third-party lenders, RFCs can offer to acquire receivables at a 25-40 percent, up-front discount of fair market value (FMV). Problems arise, however, when the discount is not … Continue reading Fair Market Value Test Can Render Related Finance Companies Invalid

Increasing Cash Flow with Lines of Credit

The average used auto dealership operates differently today than it did prior to 2008. Although margins can be healthier for “buy here pay here” dealers than for market rate dealers, accounting for these dealerships is complex. And cash flow is a constant concern. Dealers must balance inventory investment with collections. Yet, receivables alone don’t support … Continue reading Increasing Cash Flow with Lines of Credit

Does Your RFC Pass the IRS Validity Test?

Related finance companies (RFCs) were not designed to be a tax-planning vehicle to reduce or defer auto dealership income. If the IRS validity test discovers noncompliance that cannot be explained in the RFC’s or dealership’s documentation, additional taxes and penalties can be severe. We find that many RFCs and dealers do not regularly review their … Continue reading Does Your RFC Pass the IRS Validity Test?

Related Finance Company Pros and Cons

  A Related finance company can provide a useful service to the public when operated to help auto dealerships sell cars to people who need an alternative financing method. This does not mean that every dealer should operate an RFC. Rather than a benefit to the dealer, it can actually be a financial drain due to … Continue reading Related Finance Company Pros and Cons

Other Considerations Relating to CECL

CECL Considerations for Dealerships The ECL will be reported in current earnings as an allowance for loan and lease losses (ALLL) in your entity’s financial statements. Because this new methodology could adversely affect a BHPH dealer’s net worth on financial statements, dealers will need to factor in CECL considerations and how adjusted financial statements could … Continue reading Other Considerations Relating to CECL

CECL and Loan Portfolio Analysis

Analysis Required In a June 2016 report by Big Four accounting firm PwC, it stated that each entity’s “estimate of expected credit losses (ECL) should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments.” The actual methodology used to calculate ECL is left up to each financial entity, so it … Continue reading CECL and Loan Portfolio Analysis

Current Expected Credit Loss Model (CECL) and Data Collection

BHPH dealers may need to consider data collection in ways they haven’t before, or ways of collecting data that weren’t required before, to develop forward-thinking estimates of credit loss. For example, our clients will often review data on all the loans issued in a given month, and then analyze how those loans are performing as … Continue reading Current Expected Credit Loss Model (CECL) and Data Collection

The Impact of New Credit Loss Standards on the BHPH Industry

Following the global financial crisis of 2007 and 2008, the Federal Accounting Standards Board (FASB) has taken steps to mitigate risk among financial institutions. One of the newest standards is a change from the “incurred loss” accounting model used to evaluate financial portfolios to an “expected loss” model known as the Current Expected Credit Loss … Continue reading The Impact of New Credit Loss Standards on the BHPH Industry

Preparing for BHPH Bad Customers

There are two schools of thought when creating cash flow for a buy here pay here auto dealership. One involves selling cars as quickly as possible and repossessing them just as quickly. The other more viable option is to focus on customer service. By keeping customers in a vehicle longer, the dealer can also secure … Continue reading Preparing for BHPH Bad Customers