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Dealers advised to manage stock finance better

Capital Bank believes dealers could do more to structure their stock finance despite heightened awareness around its importance.

Registrations in the first half of the year were higher than in 2006, but margins remain tight, pushing dealers to use cash to buy cars. Capital Bank says liquidity is affected when dealers do not make the best use of their cash – leaving capital tied up on the forecourt can result in cashflow stress.

Capital Bank senior director Paul McGill said: “Cash is king and cash management is key to success.

“We will lend between 80-100% of the stock value. Banks traditionally might only lend between 15-20%.”

McGill said arrangements such as these can significantly increase the cash available to dealers, and charges on a stock-funding facility may work out cheaper than an overdraft. This makes it cost effective, as well as becoming a long-term generator of income.

“The best time to borrow money is when you don’t need it – planning when cashflow is good can help eliminate problems further down the line,” said McGill.

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