For every dealership accounts receivable account, there exists a reasonable collection turn cycle. If submitted timely, new vehicle rebates and incentives should be coming in weekly. Holdback should be coming in quarterly or monthly, depending on what program the dealership has signed up for. Contracts-in-transit should be collected within just a few days.

Advances in technology have greatly shortened the turn cycles related to manufacturer and financial institution receivables. For vehicle accounts receivables, parts and service accounts receivables, body shop receivables, employee receivables, and miscellaneous other receivables, the collection processes are typically not so technologically advanced. Therefore, it’s incumbent upon dealership staff to ensure these accounts are collected in a timely manner.

To determine the frozen capital factor for accounts receivable accounts, it’s important to isolate that portion of each receivable that remains unpaid after a normal turn cycle. Here are a few recommended guidelines:

• Contracts-in-transit: 2–5 days
• Vehicle receivables: 4–7 days
• Holdback: Quarterly or monthly, depending upon the program
• Manufacturer rebates and incentives: 15–30 days
• Warranty receivables: 8–16 days
• Parts and service accounts receivables: 3–45 days
• Body shop receivables: 90–120 days

We recommend that the owner or general manager of the dealership receive a frozen cost determination related to receivables that remain unpaid beyond a normal collection turn cycle on a monthly basis. Accompanying this determination, we recommend that the appropriate members of dealership management receive a list of these old receivables as well.

Next Month: Inventory Observations