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7 Dealership Procedures to Increase Operational Efficiencies

A review of the “Contracts in Transit” (CIT) schedule can provide a great starting point to gauge the health of the sales department and more importantly the finance and insurance arm. This report is compiled daily in summary form with important aging information. It is one of the most important tools used in managing the most significant receivable of dealership procedures and gauging cash flow.

The CIT report’s usefulness is enhanced when reviewing the detail version including zero balances. It is very important to note to include zero balances as this is where the power of this report can be unleashed. The details will provide the date a contract receivable is posted which should correspond to the sale date of a vehicle as well as the date a contract is funded which should correspond to the date paid by the bank.

A healthy funding rate is in the range of four to ten days from the date of sale to receipt of payment. Consistent funding beyond the twelve-day range is a strong indicator of inefficiencies in the Sales department. Using the detail CIT report, the goal is to identify the exception items and trace the items back to the Dealer Management System (DMS). The Finance and Insurance department works with the DMS to qualify customers for financing. The DMS also links the finance team directly to the banks, allowing for communication of stipulations required to approve the financing and complete the sale.

After contracts are submitted to the funding source, they should generally fund within four to ten days. If you are signed up with E-contracting, the turnaround can be the next day. If contracts do not fund, an inquiry should be made to the funding source using the DMS, email or a traditional phone call. The DMS is a communication tool as well and analysts at the funding source will indicate open items holding back the funding. Open items is an indication the contract submitted was incomplete and or missing additional documentation.

Following will be an outline of recommended dealership procedures to assess the efficiency of the Finance and Insurance department:

  1. Using the detail zero balance CIT report, identify controls with twelve or more days between the date of sale and funding.
  2. Compile a listing of the exceptions by customer name.
  3. Trace the exception listing to the dealer management system. i.e. Route One, Dealertrack.
  4. Using the dealer management system, identify the reason for funding delays.
  5. Spot trends and update protocol to prevent future delays.
  6. Monitor progress.
  7. Continue regular assessments by repeating the process.

Not all dealerships process their contract paperwork in the same manner, so the steps above will need to be modified to your particular situation. The scenario above assumes contracts are packaged by the finance and insurance department and all accounting transactions are recorded in a timely manner.

If you have any questions on these dealership procedures or for more information, please contact a member of Withum’s Automotive Services Group by filling out the form below.

Author: Sebastiano Banchitta, CPA, CGMA  |  sbanchitta@withum.com

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