Stocking Finance: How Unit, Floorplan and Inventory Funding Works

Inventory ties up cash. For vehicle, truck and equipment dealers, stocking finance (also called unit stocking finance, floorplan finance, dealer floorplan or inventory funding) converts inventory into a managed, short-term funding line so you can increase throughput without eroding working capital. This practical guide explains what stocking finance is, how it works step-by-step, typical costs and risks, how it compares to alternatives, and a checklist to use when assessing offers. By the end you'll know the right questions to ask lenders, the regulatory points to watch (PPSR, ASIC, GST/BAS), and how to model holding costs to protect margin.

What is stocking finance?

Stocking finance is a short-term credit facility that funds inventory purchases for dealers. Under a typical floorplan arrangement the lender advances most of the purchase price of each unit (a car, truck, excavator or trailer) to the supplier; the dealer repays the lender when the unit is sold.

Key characteristics:

• Advance on a per-unit basis rather than against whole-of-business assets
• Repayment is usually triggered by sale, trade-in or a fixed holding period
• Lenders register security interests on the Personal Property Securities Register (PPSR), and enforce stock control and audit rights
• The facility reduces cash tied in stock and improves working capital management

How stocking finance works (step-by-step)

A typical floorplan workflow follows this sequence:

1. Quotation and supplier purchase — Order stock from manufacturer or wholesaler. Lender pre-approves the purchase and pays the supplier or reimburses you on delivery.

2. Registration and security — Lender registers a security interest over each unit on the PPSR. Stock is physically at your premises but the lender retains rights until repayment.

3. Stock control and reporting — Maintain inventory records in the lender's required format and provide reconciliations. Lenders perform periodic audits (physical or electronic) to reconcile units and verify PPSR status.

4. Holding and sale — While the unit is held you typically pay a daily or monthly holding cost (interest or a discounted fee). On sale, proceeds flow through the agreed settlement process: the lender receives repayment of the advance plus fees, and you retain the residual margin.

5. Replenishment and revolving nature — As units are repaid, your available floorplan limit replenishes for ongoing stocking.

Typical parties involved include the dealer (who manages sales and customer interaction), the funder (who provides advances and enforces controls), and the manufacturer/distributor/supplier (who delivers units and may support OEM stocking programs).

Operational controls lenders commonly enforce:

• PPSR registration and insurer naming the lender as loss payee
• Minimum condition and mileage requirements for eligible units
• Audit frequency and integration with dealer management systems (DMS)

See practical guidance on PPSR procedures in the PPSR registration guide and stock management in inventory management for dealers.

Types of stocking finance and common structures

Stocking finance comes in several forms:

• Floorplan / Unit stocking line — Per-unit advances, revolving line; most common for vehicle dealers.
• Consignment stock — Supplier retains title until sale; dealer sells on behalf of supplier and pays on receipt of cash.
• Fixed vs variable lines — Fixed lines limit value/number; variable or revolving facilities allow repeated draws as stock turns.
• Dealer captive programs — Manufacturer-backed floorplans with promotional rates or deferred terms on new stock.

Compare alternatives like an Operating Lease or broader Working Capital options when choosing a structure.

Costs, pricing and fees

Stocking finance pricing has several components. Understand each line item and model its impact on margin.

Common cost items:

• Advance rate — Portion of purchase price funded (typical 70–95% depending on unit type, age and marketability).
• Interest or holding charge — Charged daily or as a discounted fee. Structures include daily interest at a contracted rate (e.g., base + margin) or discounted fee taken when advance is made (equivalent to upfront interest).
• Facility fee / line fee — Monthly administrative fee for maintaining the facility.
• Per-unit fees — Setup/processing for each unit added to the floorplan.
• Audit and reporting fees — Charged for physical audits or electronic reconciliation.
• Default, legal and repossession fees — Triggered on breach.
• Exit or termination fee — On facility close-out in some agreements.

Example fee illustration:

• Advance rate: 85% of invoice
• Holding cost: 0.15% per day (≈4.5% p.a.)
• Monthly facility fee: $150
• Per-unit fee: $10

GST and BAS basics: GST on purchases is typically claimable, but timing depends on whether the lender pays the supplier and how invoices are issued. The ATO has guidance on GST treatment for businesses at https://www.ato.gov.au/business/gst/. Make sure your BAS accountant understands how floorplan cashflows are recorded to avoid GST timing issues.

Product options related to stock funding include Asset Finance and Equipment Finance, which can suit specialised equipment dealers or different ownership models.

How costs affect margin and cashflow:

• Holding cost × average days-to-sell reduces gross margin
• Facility fees and per-unit charges are fixed overheads that erode net profitability, especially on slow-turning stock

Keep the effective cost-per-30/60/90-days front of mind when comparing offers — headline rates can be misleading.

Eligibility, documentation and underwriting criteria

Lenders commonly assess:

• Business vintage and dealer experience with the unit types offered
• Financial statements: recent management accounts, P&L, balance sheet and cashflow
• Turnover and margins for the stock category
• Stock management systems and reporting capability
• Insurance arrangements naming the funder as loss payee
• Agreement to PPSR registrations and audit access

Typical documentation checklist:

• Company information and ACN/ABN
• Financial statements (last 2–3 years) and current management accounts
• Business plan or sales forecast for the stocked line
• Dealer agreements with suppliers/manufacturers
• Insurance certificates and stock control SOPs
• Identity and beneficial owner information for compliance

Underwriting often includes supplier reference checks and delivery verification. Prepare reconciled stock files and an audit trail to speed approval.

Comparison: stocking finance vs other funding options

See also business loans for dealerships and wider dealer finance options.

Worked example / cost illustration

Illustrative example — for modelling only.

You buy a used vehicle with invoice $10,000. Lender advance rate 85% ($14,000). Holding cost 0.12% per day (≈4.38% p.a.). Per-unit fee $10. Facility monthly fee $100 (allocated across inventory).

Cost if vehicle sells in:

• 30 days: holding cost = $14,000 × 0.0012 × 30 = $1,224; plus per-unit fee $10 = $1,284.
• 60 days: holding cost ≈ $1,448; total = $1,508.
• 90 days: holding cost ≈ $1,672; total = $1,732.

Net margin impact:

• If sale price $14,000, gross profit before financing = $1,000.
• After 60 days financing costs ($1,508) net ≈ $1,492 (37% reduction in gross margin).
• Add allocated facility fee and possible GST timing impacts for a full picture.

Quick daily cost formula: Daily cost = Advance × Daily rate. Always request lender quotes and model scenarios at 30/60/90 days for your specific stock mix.

Risks, covenants and compliance considerations

Key risks and lender safeguards:

• Repossession and stock recall — Default triggers (missed reporting, uninsured loss, unauthorised disposal) can enable immediate repossession.
• PPSR priority issues — Ensure suppliers or other parties don't register competing security; check PPSR searches regularly at https://www.ppsr.gov.au.
• Audit exposure — Surprise audits can disrupt operations; non-compliance leads to fees and possible suspension.
• Insurance and uninsured losses — Lenders require full cover; uninsured damage may create immediate repayment obligations.
• GST/BAS misalignment — Incorrect GST treatment of payments to supplier vs lender can create BAS timing and cashflow traps (ATO guidance: https://www.ato.gov.au/business/gst/).
• Covenant burden — Common covenants include maximum aged stock limits, minimum turnover and required reporting. Breach can restrict draws.

Practical mitigation:

• Maintain disciplined stock-aging controls and KPI reporting
• Keep reconciled stock files and integrate your DMS with lender reporting
• Limit exposure to slow-selling lines and negotiate advance rates that reflect marketability
• Confirm PPSR registrations after settlement and retain discharge evidence when units are repaid
• Keep insurance certificates current and list lenders as interested parties

Regulatory context: lenders and intermediaries operate under ASIC supervision; monitor ASIC guidance on credit and secured lending at https://asic.gov.au. Interest environments affecting floorplan rates are shown by the RBA at https://www.rba.gov.au.

How to choose a stocking finance provider — checklist

Questions to ask lenders:

• What advance rate for my unit types (new/used, trucks, plant)?
• How is holding cost charged (daily interest, upfront discount, flat fee)?
• What are the per-unit and monthly fees?
• What audit frequency and evidence do you require?
• How is GST handled on supplier payments and sale settlement?
• What are the default triggers and cure periods?
• How quickly do you release funds upon sale and what settlement flow is required?
• Do you integrate with my DMS for reporting?
• What PPSR registrations will you lodge and how are discharges handled?

Red flags:

• Excessive audit frequency without digital integration
• Non-transparent per-unit or legal fees
• Aggressive default triggers with little cure time
• Lack of clarity on GST handling or settlement paths

Evaluation checklist:

• Compare effective cost per 30/60/90 days, not headline rate
• Confirm advance rates by stock category
• Check integration capability and reporting templates
• Review insurance, PPSR and repossession processes in the facility agreement
• Obtain sample contractual terms and a full fee schedule

For broader funding choices review business-loans and dealership program examples at floorplan finance.

Application process and timeline

Typical timeline:

• Enquiry and pre-qualification: 1–3 business days
• Document submission and underwriting: 1–3 weeks (depends on completeness)
• Facility offer and negotiation: 3–7 days
• PPSR setup, insurance and integration: 1–2 weeks
• First drawdown: after supplier invoices and PPSR registrations are complete

Tips to speed approval:

• Prepare reconciled financials and stock controls ahead of time
• Provide supplier invoices and dealership agreements promptly
• Set up insurance with lender-required endorsements early
• Confirm DMS export formats and sample reports before audit

FAQ

Key takeaways

Stocking finance (floorplan or unit stocking) is a specialised inventory financing solution that improves working capital and sales throughput but comes with distinct costs, reporting obligations and covenant risks. Focus on modelling effective short-term costs (30/60/90 days), confirm advance rates by stock category, check DMS integration and PPSR procedures, and get clear answers on GST and settlement paths before signing.

This article is general information only and is not legal, tax or financial advice.