Deal Pack Blog
What are the Benefits of a Related Finance Company?
In the Buy Here Pay Here (BHPH) industry, the typical customer walking through your door is coming to you for a reason: They can’t get the financing they need to get a vehicle anywhere else. Selling the vehicle to the customer and managing the receivables yourself is a sure way to get the car off the lot, while giving the customer a chance to rebuild their credit. However, with this process comes the necessity of paying taxes on the entire sales revenue of the vehicle at the time of sale. What if, rather, you sold the receivable to yourself at a discount? You can!
Setting up a related finance company (RFC) to purchase the receivables your sales efforts generate is a great way to accomplish a few things:
1. Your dealership will be paying the tax on the sales revenue MINUS the discount you sold the receivable for to the RFC
2. The RFC is its own legal entity – with its own name and address, relieving the dealership of the risk of customer defaults and of being the “bad guy” come collections and/or repossession time
3. Your sales personnel can concentrate on sales, not collections
4. You control the “bank”, allowing you to offer more flexible payment terms to your customers, such as weekly payments
When you have an operation with both a sales and finance company in place, make sure your dealer management software (DMS) handles the process of selling the loans as simple as possible by easily transferring your receivables from the dealership to the RFC. Deal Pack gives our clients the ability to do so with just the click of a few buttons. We also make the process of selling the car back over to the dealership after a repossession a painless transition, all while keeping the accounting for both companies completely separate from each other.
Please remember, that while I am college educated and totally trustworthy, I am neither a tax accountant nor an attorney; you should consult yours before making a change to your current operation or starting any new company.