Correct These “Easy to Make” Mistakes for Easy Money

An unusual “phenomenon” seems to be rearing its ugly head again – large overage balances on dealerships’ Factory Receivables Incentive Schedules. Not large balances due purely to large or increasing sales volume or slow payments by the OEMs for claims in-process. These are unclaimed incentives, unresolved rejects and chargebacks not researched and reversed. Thousands of dollars sitting on paper vs. in your bank account! Not good for any dealership.

Think this doesn’t pertain to you? Well, think again. Do you know your current schedule balance? Double-check them – you might be surprised.

This trend was happening during the early 2000’s. Before the bottom fell out, dealers were making money and were, if I may say so, “fat and happy.” They weren’t paying attention to the details or asking any questions. Plus it was overlooked because of other profitable areas and departments in the dealership. Although factory incentives was, and still are, the largest receivable for dealerships, it wasn’t always given the attention or proper oversight that it deserves.

Then, factor in this – true balances can be camouflaged by credit balances on VINs within a schedule — so your real outstanding balance is actually larger. For example, an incentive is applied for and paid, but that same incentive was never set-up as a receivable, therefore creating a credit balance. The business office makes an adjustment entry to clear it out and you’re just glad it paid. That might sound OK, but it’s not. What if your staff had not applied for that incentive? (It may not be on the customer incentive form) — You would have lost that money. Multiple or many credit balances on a schedule are “red flags.” So are multiple “in and out” entries.

Anytime there are missed set-ups, you have lost the ability to track them or account for them, becoming a likely loss. (Of course, your grosses would be off, but do you really review them all individually?). Incentives such as dealer cash (not passed to customers), dealer allowances (for employee/supplier sales), customer’s first month payment waiver, etc. are often missed entirely. These type of dealer incentives are mostly your money to go to gross.

Point: you live and die by accurate set-ups and schedules.

Consider all the OEM chargebacks and rejects that can be researched, corrected, then reversed, — these corrections can re-coup money for you and drastically reduce your outstanding balances.

Here’s how these costly mistakes can easily happen:

1. Assigning the wrong person to be responsible for incentives claim submissions and resolutions: inexperienced office personnel, part-timers, interns or new business office personnel. This is no place for the “newbie” — deep experience is a must.

2. Assigning the same person to be responsible for incentives claim submissions, resolving rejects and chargebacks, monitoring weekly factory payment memos, reconciling schedules, “write-offs” or “moving” overage balances. A serious conflict of interest.

3. Schedules not fully and accurately reconciled every month. Extra efforts not being done to ensure at year-end that balances are accurate and as many paid as possible.
4. No ownership and accountability of schedules by the controller or office manager.

5. The sudden departure or retirement of that experienced incentives clerk, controller or office manager, when no one else knows that job. Large incentive dollars can add-up quickly if not handled weekly, even in a small dealership where cash flow is critical.

6. No communications or solid action plan between the controller and dealer specific to this issue — no weekly or bi-monthly meetings to review balances, delegate ownership.

7. Dealers themselves not knowing where or for what to look. This type of careful accounting review requires a closer look past the operating reports, balance sheets and other financial statements.

Let’s keep it simple. For starters, looking at the last page of the schedule will tell you a lot – the total balance and the balance’s age analysis (must be summarized by periods: 0-30 days, 31-60 days, 61-90 days, 91-120 days, +120 days). Anything over 60 days old should be a concern. Then the dialog can start and questions can be asked. These steps will take a few minutes of research and you’ll be glad you did.

When balances reach the $200K range, other issues come into play: how old are the unpaid incentive programs; how long will your OEM let you go back and apply for payments; who has the in-depth experience and enormous amount of time to go back and do all the work required to review, research and resolve the hundreds of deals and related incentives involved? Getting in-house or outside professional help if progress is not made immediately will be a cost-worthy investment.

After the dust settles, staffing, training, controls, processes and separation of duties will need to be evaluated and implemented to avoid any future occurrences. In these days, when you’re dealing with rebuilding sales volume and shrinking margins, every dollar counts and good cash flow is critical.

Think of incentives like the stock market – if you don’t know what you’re doing you can get “burned” pretty badly; or worse case, eaten alive. Don’t let your competition down the road do a better job with it than you.