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By Deal Pack - June 28, 2012
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.
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Advanced Business Computers of America (ABCoA) develops and supports end-to-end software solutions for the subprime finance industry. Since 1983,
we have helped automotive dealerships and finance companies eliminate duplication, remain compliant, and achieve success with dependable, all-in-one software and white glove service and support.
Deal Pack is a complete, all-in-one software ecosystem customizable to your exact needs and scalable to your exact size - helping improve your operations, grow your business,
and solve the challenges you face. Whether you are a finance or sales company, multi-entity or publicly traded company handling BHPH or LHPH, operating or capital leases,
internal or external floor-planning, retail, rentals, consumer loans, origination, or seasoned paper, Deal Pack is the dependable software for mission critical operations.
Deal Pack handles all of your business needs transparently – providing you measurable improvements and complete financial control, saving you time,
increasing your bottom line, and allowing you the freedom to focus on your daily operations. Deal Pack is relied upon by thousands of customers across
all 50 states in the United States and six countries around the world. Customers properly using Deal Pack have never lost an IRS audit.
To learn more about ABCoA, visit www.abcoa.com.