Floor plan financing is a loan a lender secures with the specific units on a dealer's floor. The lender pays the manufacturer for each unit, the dealer repays that unit when it sells, and units that sit are usually paid down on a schedule (curtailments). Lenders typically finance the full invoice cost of new merchandise.1
What floor plan financing is
A lender pays the manufacturer for the units on your showroom floor. You owe the lender for each unit, and you repay it when the unit sells. The Office of the Comptroller of the Currency, which examines national banks, says floor plan advances are typically repaid as the inventory is sold.1
Wells Fargo's inventory finance page describes the flow:2
- The dealer orders from the vendor.
- The vendor ships and sends the invoice to the lender.
- The lender pays the vendor and sends the dealer a statement.
- The dealer pays the lender.
The same page lists extended repayment terms on inventory purchases as a benefit to dealers, sometimes subsidized by the manufacturer or distributor.
The unit is the lender's collateral until you pay for it, and lenders track it by serial number. The OCC describes the trust receipt behind this: the lender holds title to the merchandise while the dealer holds and sells it in trust.1 Floor plan interest is usually payable monthly, on the average daily balance.1
Interest-free periods
Some programs start a unit with a stretch of no interest. Sometimes the manufacturer covers the interest for a set time.2 The length is in your agreement with the lender or the manufacturer. Ask for it in days from the date the lender paid, and write down the date each unit's free period ends.
Curtailments
A curtailment is a scheduled paydown of principal on a unit that has not sold. The OCC says a curtailment provision requiring periodic principal reductions for stale inventory is normally part of the agreement, setting the timing and the percentage for each loan when the inventory does not sell within a set time.1
Lenders do this because stock loses value. The OCC says the curtailment structure should be set so debt reductions match or exceed the market depreciation of the collateral, and names demonstrators and last year's models as stock that can lose value fast.1
Each curtailment is the original principal times the schedule's percent. An example, with made-up numbers: a spa floored at $10,000 on a schedule of 10% at 91, 181 and 271 days.
| Day | Curtailment due | Left on the unit |
|---|---|---|
| 1 to 90 | none (free period) | $10,000 |
| 91 | $1,000 | $9,000 |
| 181 | $1,000 | $8,000 |
| 271 | $1,000 | $7,000 |
Each payment is due whether or not you have the cash set aside, and selling the spa on day 200 means paying off the $8,000 left.
Payoff when a unit sells
When the unit sells, you pay the lender what is left on it. Agreements set how fast. The OCC notes that banks sometimes allow a few days after a sale, and that dealers selling in large volume are usually granted three days of leeway.1
Selling a unit and not paying for it promptly is called selling out of trust. The OCC defines it as selling the inventory without immediately remitting the funds to the bank to retire the debt.1 It says this usually happens when a dealer has cash flow shortages, and that inadequate accounting and inventory control systems expose the lender to heightened risk of fraud. A dealer who has spent a customer's payment on payroll while a unit is still owed on is selling out of trust.
Floor checks
Lenders verify that the units they paid for are on your floor. The OCC says floor plan checks should be completed by bank staff or an approved outside vendor at least quarterly, and more often for "pay as sold" loans, which it says should generally be inspected monthly. Checks can be announced or unannounced.1
The inspector verifies serial numbers against the lender's list. A unit that is missing needs an answer: sold and in the process of being paid, out on demonstration, or at a repair shop. The OCC says a bank may ask the dealer to produce goods that are out of the building within a reasonable time, for example two days.1 A unit that is missing at the check and paid off only afterwards is a sign the dealer was using the lender's money in the meantime.
What aged stock costs
A unit that sits costs you three ways. The free period ends and interest starts. Curtailments come due, so cash goes out for a unit that has earned nothing. And the unit itself may lose value, which is why the lender asks for the paydowns.
The OCC also lists unpaid interest, unpaid curtailments and out-of-trust sales as warning signs for a lender, and says they prompt more frequent inspections.1
How the books record it
In the books:3
- Inventory is an asset at cost, even though you did not write a check for it.
- Floor plan payable is a liability for what is owed on units still on the floor. A curtailment reduces it, so it is a payment of principal, not an expense.
- Interest expense accrues on the outstanding balance whether or not the unit sells. Manufacturer interest assistance offsets it.
When a unit sells, revenue and cost of goods sold are recorded as usual, and paying the lender clears the liability. Your accountant sets the exact entries.
What to track for each unit
| Field | Why |
|---|---|
| Serial number | The lender checks stock by it |
| Lender and approval number | Matches your records to the statement |
| Date floored and principal | Every other date counts from here |
| Interest-free end date | Tells you when interest starts |
| Curtailment dates and amounts | Cash you will owe on an unsold unit |
| Amount paid down and what is left | The balance should match the lender's |
| Date sold and payoff due date | Keeps you from selling out of trust |
Questions
What does sold out of trust mean?
Selling a floored unit and not paying the lender what is owed on it right away. The OCC defines it as selling the inventory without immediately remitting the funds to retire the debt.
What is a curtailment payment?
A scheduled paydown of principal on a floored unit that has not sold, usually a percent of the original amount at set days after the unit was floored.
What is a floor check?
The lender's count of the units it financed, by serial number, done by its staff or an approved outside firm at least quarterly, announced or not.
How soon after a sale must I pay off a floored unit?
When your agreement says. The OCC notes that banks sometimes allow a few days, and that dealers selling in large volume are usually given three.
How Retavon handles it
Retavon is cloud-based point of sale and store management for specialty retailers, and its floor plan feature keeps the table above for you. You set up each lender with its interest-free days, its curtailment schedule and the days after a sale to pay a unit off. You floor a unit by hand or as the purchase order is received. Retavon then shows what is left on each unit and when its curtailments and payoff fall due.
When a floored unit is handed over to a customer, its payoff comes due on the lender's terms. A payoff must be exactly what is left on the unit, and the system says so if the amount is wrong. A unit that comes back unpaid is floored again. Your accounting system keeps the loan balance and the interest. Retavon keeps the units and the dates.
In the demo, Blue Lake Pool and Spa (a made-up dealer) floors its new spas with a made-up lender, Summit Commercial Finance: 90 days free, 10% of principal at 91, 181 and 271 days, and payoff 10 days after a sale. Those are the demo's terms, not a typical lender's. A swim spa that has sat 120 days shows its first curtailment overdue.
Ask ChatGPT or Claude what falls due this month, and it answers from the same live numbers, with your permissions.
Sources
- Office of the Comptroller of the Currency, Comptroller's Handbook, Floor Plan Lending (version 1.2): occ.gov
- Wells Fargo, Floor Plan/Inventory Finance: wellsfargo.com/com/financing/inventory-finance
- Beancount.io, outdoor power equipment dealer bookkeeping, floor plan financing and curtailment: beancount.io