Define Floor Plan Notes Payable

Floor plan finance companies are uniquely attuned to the needs of auto dealers.

Define floor plan notes payable.

Notes due in full less than 12 months after the balance sheet date are short term for example a business may need a brief influx of cash to pay mandatory expenses such as payroll. First notes payable are operating liabilities for many businesses. For example automobile dealerships utilize floor plan financing to run their businesses. Any company such as a car dealer that uses bank borrowing to floor plan inventory is using notes as operating liabilities.

Floor planning is a form of financing for large ticket items displayed on showroom floors. With floor plan financing you will work with a third party financing institution a floor plan financing company to. What you don t realize is that like most new car dealers a floor plan was used to finance the cars. Go to any large auto dealer and there are hundreds of cars on the lot.

Using cash or a bank line of credit to purchase inventory can work for some car dealers but many floor plan financing companies offer a variety of dealer specific benefits. Floor plan notes payable definition. In this case the interest paid actually is an operating cost. In notes payable accounting there are a number of journal entries needed to record the note payable itself accrued interest and finally the repayment.

The account notes payable is a liability account in which a borrower s written promise to pay a lender is recorded. Definition of notes payable. How does floor plan financing work specifically to benefit auto dealers. This article reviews how you can manage floor plan financing with quickbooks.

Suppose for example a business issues a note payable for 15 000 due in 3 months at 8 simple interest in order to obtain a loan then the total interest due at the end of the 3 months is. By review home co july 29 2018. Simply it is a way for an auto dealer to use a. In our view this issue runs much deeper.

A floor plan is a method that a business such as an auto dealership can use to finance inventory that they are holding for resale without having to tie up their own capital in that inventory. Floor plan notes payable definition. Floor plan lenders include local and regional banks large national banks and financing companies owned by the manufacturing companies like toyota financial or ford credit. The lender record s the borrower s written promise in notes receivable generally the written note specifies the principal amount the date due and the interest to be paid.

You may wonder how much the dealer had to spend to provide you with almost limitless choices. For example a dealer might be able to borrow 10 million over the year to purchase 300.