Audits are a normal part of the floorplan financing (called “floor plan financing” by some) process, for any dealer who’s using a floorplan to finance their inventory purchases. Here’s what a floorplan audit is, why they’re necessary, and what might happen after a dealer’s inventory gets audited.
>> New to floorplan financing? Here are some terms you should know.
Definition of a floorplan audit
A floorplan audit (also called collateral verification or a floorplan inspection) is a process by which the floorplan lender verifies all inventory and documentation provided by the dealer. This ensures that the dealership is in compliance with the terms and conditions of the floorplan financing agreement, and that all proper controls and procedures are in place to manage the floored inventory.
Why do floorplan companies audit dealers?
In general, the motivation behind a floorplan audit is to ensure that the floorplan lender and the dealer are on the same page. An audit assures the lender that the dealership is utilizing financing appropriately, maintaining accurate records, and managing floored inventory in accordance with the agreed-upon floorplan terms.
When a vehicle is sold and not paid off according to the agreed-upon terms, that’s an issue for dealer and floorplan lender alike. On the dealer side, continuing to pay fees and interest on a vehicle that’s been sold is fiscally unsound, even for a short time. And while it’s relatively uncommon, it is possible to simply lose track of a vehicle—an auditor can find it.
On the lender side, it needs to ensure that the vehicles it financed are still with the dealer and have not been sold without timely payment. A vehicle could be considered “sold and unpaid”—which means that the auditor will need to verify that the payment is in progress, or they’ll need to investigate the cause of a delayed payment. If there’s no reasonable explanation, it may be considered “sold out of trust,” which is a fairly serious issue that could lead to trouble for a dealer.
What happens after a floorplan audit?
At the conclusion of an audit, a dealer is provided a report on the auditor’s findings, as well as any recommendations if improvements are needed. The dealership can use this information to enhance their own inventory management process, strengthen internal controls, and ensure compliance with their floorplan company.
If a dealership fails their inventory audit, that means significant issues or discrepancies have been identified during the audit process. The consequences of failing a floorplan audit will vary depending on the severity and nature of the audit’s findings, as well as the specific terms of the floorplan financing agreement.
Disclaimer: Descriptions of AFC floorplans are for illustrative purposes only. Terms of AFC floorplan financing are subject to a final written agreement acceptable with AFC. AFC does not guarantee any results for floorplan financing and examples are for illustrative purposes only. Dealers should consult their own advisors to make independent business decisions regarding floorplan financing.
