Deal Pack Blog
What is the Bank Reserve vs Dealer Reserve?
Often, dealers need more cash flow to run their current operations. They may choose to sell off their current receivables to outside banks or finance companies. Although there is typically a discount included in the sale of these receivables, the bank may still want additional security. This is where a bank reserve/dealer reserve comes into play. What this is is an amount kept by, and set aside by the person buying the receivable. This amount is kept by the buyer just in case the entire receivable is not actually collected. This helps to offset any loss created by not being able to collect the receivable.
I have been asked what the difference between the bank reserve and the dealer reserve is, but they both actually refer to the same thing. The reason there are two different names is because they are termed differently depending on a person’s point of view. From a bank’s (buyer perspective), it is called a dealer reserve, and is a liability to the dealer if receivables are adequately collected. From the dealer’s perspective, it is called the bank reserve, and is a receivable that is collected if the bank is able to collect the receivable they bought.