F&I Time is Money

One of Boating Industry’s Top 100 Dealers, Joe Lewis of Mount Dora (Fla.) Boating Center and Marina, recently advised that a floorplanning agreement he made had contained a provision that allowed the interest rate to float up without a ceiling, but to retreat only to a certain level. His recourse was to renegotiate the loan — typically allowable, at least during annual reviews — to eliminate the “false floor,” let the rate freely float and settle below a higher rate he had been paying.
Lewis’ example underscores the importance of reviews of practices and agreements that every business should schedule on a regular basis, particularly when times are challenging. Inventory loans are a boating business’ major expense item; thorough reviews of other lending, insurance and entitlement programs can help find savings or generate cash flows when they are most needed. Here are some tips to help:
When borrowing, it’s wise to shop for the best rates, but also to recognize that a position of strength grows with the volume of borrowing the lender is promised, or expects, in addition to the business history of the borrower.
Check your firm’s credit profile often to make sure it is an accurate reflection, and look for ways to improve the scores. Have up-to-date financial statements available to show that management is carefully monitoring and adjusting to current conditions and longer-term trends. Be prepared to discuss what’s occurring in the marketplace and have supporting facts and figures to illustrate projections.
Paying off aged inventory is an important focus to reduce costs. Most providers charge an interest rate premium for invoices over 365 days, and obtaining an operating line of credit with the bank can help minimize this interest cost. Banks may hesitate in providing this unless the borrower has a strong relationship. The lender will likely request a pledge of different collateral to initiate the program. Dealers could start this with a small line for a couple of boats, move them quickly, pay them off and grow the line with a good history.
Use electronic wire transfers to pay off units sold as well as monthly interest payments. Lewis suggests that waiting until the last day to make interest payments improves cash flow without penalties. Electronic transfers also provide time-certain proof when funding for sold units is received by the floor-plan provider, and could save several days’ worth of interest. Make sure funds transferred are posted the following day with a follow-up phone call if necessary. Paying close attention to this can save hundreds, if not thousands, of dollars over the course of a year.
If the lender is doing a visual check of boats on floor plan, accompany the agent to verify the count and specific units in the inventory records. Note any discrepancies with the agent and follow up with the responsible lending officer or manager.
For day-to-day banking, use on-line programs to check accounts daily and review monthly statements. Use deposit and charge card systems that are most efficient for the business and the bank to keep management simplified and costs low. If accepting checks for transactions, try to verify the payer has sufficient funds to avoid the costs and hassles of a bounce. If funds are in interest-bearing accounts, go for the highest yields based on the shortest terms based on cash flow needs. Question all fees, recurring or a surprise, and request that they be removed or find ways to eliminate them.
As activity in the business rises or falls, review insurance policies to determine if coverages are adequate or excessive, or still necessary, and that premiums reflect current conditions. Schedule time with the agent to look at exposures, employee count, hours of operation, enhancements such as certification, etc. Working through an underwriter’s checklist may show either unseen risks or suggest changes to cut costs. Look at employee benefits and insurance coverages with an eye to fairly balance contributions by the owner and workers.
If conditions are such that urgent actions need to be taken, draw together business advisers to minimize damage and work on a recovery plan. Keeping suppliers advised is critical to help them respond to special needs with the longest available lead time.
F&I reviews are a good practice at any time, and especially when business conditions are changing for better or worse. They are an exercise to maximize the return of hard work of owners and crew and help to keep a current and “best-foot-forward” portrayal of a business for all suppliers to view.