This Auto Dealership Accounting Mistake Could be Costing You a Ton of Money

auto dealership accounting

Auto dealership accounting isn’t just about the bills you have to pay—it’s the money you’ve earned as well

Don’t you love the incentives offered by auto manufacturers? These spiffs help your direct marketing efforts, light a fire under your salespeople, and pull in some sizable amounts of cash in the process. If you’re like most dealerships, factory incentives are the largest receivable for your entire business.

But when it comes to these prime money-makers, are you taking full advantage? Or are your auto dealership accounting processes leaving thousands of dollars on the table?

An article in Dealer Magazine, “Unpaid Incentives: What You Don’t Know Is Hurting You,” shines a light on problems with auto dealership accounting and large overage balances on dealerships’ factory receivables incentive schedules. You’re doing some of the work to cash in your incentives, but you may not be doing everything necessary to get what you deserve.

Two types of factory incentives and two ways to get them

In the world of manufacturer incentives, you’re likely looking at two different kinds on a regular basis:

1. Cash incentivesauto dealership accounting

You have a fixed amount of time to sell certain cars eligible under a marketing campaign. You’re paid an incentive for each eligible car sold, and sometimes if you exceed a sales target, you’ll get a higher discount per vehicle.

2. Dealer holdback

Depending on the manufacturer, you get back a percentage of the MSRP or invoice price after a particular vehicle is sold. Manufacturers like Ford and Chrysler will usually do about 3% of the car’s sticker price.

Marketing and selling those targeted vehicles is only the first part of the game, though. Once you’ve made the sale, you usually have to actively pursue the money you’re owed. The manufacturers can’t make it that easy, right? Depending on the manufacturer and the rules of the incentive, there are a couple of ways to initiate that payment:

1. You file a claimauto dealership accounting

Once you’ve checked the eligibility of a vehicle, you submit a claim against an incentive program. This is done online, and you’re able to check the claim status as well. Once the manufacturer settles the claim, you get paid.

2. The manufacturer manages everything

Instead of you actively submitting a claim, in this scenario, the manufacturer takes note of eligible vehicles sold, calculates payments, and issues them to your dealership.

The incentive process may seem pretty cut and dry, but it’s not. Too many auto dealership accounting offices aren’t staying on top of incentive programs, and the money is sitting on paper instead of being of value in a bank account.

The money your auto dealership accounting department is missing

The article in Dealer Magazine cites the biggest mistakes costing you money are unclaimed incentives, unresolved rejections, and chargebacks that aren’t researched and reversed. How does this happen? The author reveals a few primary ways:

1. Putting someone inexperienced in chargeauto dealership accounting

Incentives are complicated and shouldn’t just be handed off to any interns, part-time workers, or temps that have no clue what they’re doing. The amount of money you could be making (and missing) is far too great to put it in the hands of someone who doesn’t have extensive experience.

2. The person in charge leaves

You did the right thing and had an experienced, senior staff member in charge of managing incentives—but then they retired or got a new job, and you didn’t have a Plan B in place. Incentive management is a weekly task, so for every week you don’t get someone new in that position, you’re losing money.

3. There’s no ownership or accountability

The controller or office manager needs to be involved, and there should be weekly or bi-monthly meetings to review balances and delegate ownership. Schedules must be fully and accurately reconciled every single month to make sure as many incentives as possible are being paid.

The bottom line is that at least one employee needs to be in charge of the incentives program and staying on top of every single minute detail. Any unpaid balance over 60 days old is a concern to follow up on right away. And if your dealership is raking in more than $200,000 in incentives, you may want to consider investing in an outside professional who can keep everything compliant and every dollar possible in your pocket.

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Patrick H.
Patrick H.