Floor plan financing

Almost every franchised car dealer finances its stock through floor plan lines, so the balance often matches the value of new vehicles on the forecourt. The arrangement looks simple, but it raises real questions about presentation and cash flows, and the carmaker's support for interest costs needs its own accounting. This guide explains how floor plan works, follows a month of purchases and sales through the cash flow statement, and covers classification, interest support, the lender's view, disclosure and the US GAAP split between trade and non-trade floor plan.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. 4 minute read.

Short answer

Floor plan financing is the revolving credit car dealers use to pay for vehicle inventory: the lender, often the carmaker's captive finance company, pays the carmaker when the dealer takes a vehicle, and the dealer repays when it sells it, paying interest meanwhile. Under IFRS, the dealer recognises the vehicles as inventory under IAS 2 and the floor plan as a financial liability at amortised cost under IFRS 9. Whether it is presented as a borrowing or as part of trade payables, and how the cash flows are shown, depends on its terms; because the lender pays the carmaker directly, the purchase is often a non-cash transaction, so the presentation can move cash between operating and financing activities. In this guide's example, a dealer's operating cash flow for a month is US$ 990 thousand or 90 thousand depending on that presentation.

At a glance

Vehicles
Dealer's inventory, IAS 2
Floor plan
Financial liability, amortised cost
Lender pays carmaker
Non-cash purchase
Presentation
Borrowing or trade payable, by terms
Interest support from carmaker
Reduces inventory cost
US GAAP
Trade or non-trade cash flows
Floor plan financingVehicles: Dealer's inventory, IAS 2; Floor plan: Financial liability, amortised cost; Lender pays carmaker: Non-cash purchase; Presentation: Borrowing or trade payable, by terms; Interest support from carmaker: Reduces inventory cost; US GAAP: Trade or non-trade cash flows.KEY FACTS AT A GLANCEFloor plan financingVehiclesDealer's inventory, IAS 2Floor planFinancial liability,amortised costLender pays carmakerNon-cash purchasePresentationBorrowing or tradepayable, by termsInterest support from carmakerReduces inventory costUS GAAPTrade or non-trade cashflowsTax BakersFloor plan financingVehicles: Dealer's inventory, IAS 2; Floor plan: Financial liability, amortised cost; Lender pays carmaker: Non-cash purchase; Presentation: Borrowing or trade payable, by terms; Interest support from carmaker: Reduces inventory cost; US GAAP: Trade or non-trade cash flows.KEY FACTS AT A GLANCEFloor plan financingVehiclesDealer's inventory, IAS 2Floor planFinancial liability, amortised costLender pays carmakerNon-cash purchasePresentationBorrowing or trade payable, by termsInterest support from carmakerReduces inventory costUS GAAPTrade or non-trade cash flowsTax Bakers
Key facts at a glance, as set out in this guide.

How does floor plan financing work?

When the carmaker ships a vehicle to the dealer, the floor plan lender pays the carmaker and the dealer owes the lender the vehicle's cost. Interest accrues daily, sometimes after an interest-free period paid for by the carmaker. When the dealer sells the vehicle, it must repay that vehicle's balance within a few days. The lender audits the dealer's stock regularly, because a dealer that sells vehicles without repaying, known as selling out of trust, leaves the lender unsecured. Used vehicles can be floor planned too, usually from banks rather than the carmaker's captive.

Floor plan financing in a month

A dealer takes 50 new vehicles costing US$ 30,000 each, 1,500 thousand, financed by the carmaker's captive, which pays the carmaker directly. It sells 30 of them for 33,000 each, receiving 990 thousand, and repays 900 thousand of floor plan. At the month end it holds 20 vehicles, 600 thousand of inventory, financed by 600 thousand of floor plan.

Dealer's operating cash flow for the month (US$ thousand)Dealer's operating cash flow for the month (US$ thousand)990Floor plan as a borrowing90Floor plan as a trade payableBorrowingTrade payable
Presentation, not performance, moves the operating cash flow.
US$ thousandFloor plan as a borrowingFloor plan as a trade payable
Purchase of vehicles, paid by the lenderNon-cash, disclosedNon-cash when bought
Cash from customers, operating990990
Repayment of floor plan(900) financing(900) operating
Operating cash flow99090

The business is the same, but presenting floor plan as a borrowing makes operating cash flow look far stronger, because buying the stock never appears as an operating outflow. IAS 7 requires investing and financing transactions that do not use cash to be excluded from the cash flow statement and disclosed, and the classification must reflect the substance of the arrangement, applied consistently. See IAS 7 cash flows.

Is floor plan a borrowing or a trade payable?

It depends on the terms. A facility from a bank or captive, bearing interest from the start, secured on the vehicles and repayable on sale whatever the carmaker's payment terms would have been, has the features of a borrowing and is usually presented as one, often as a separate line. Where the arrangement is in substance the carmaker's normal credit terms provided through its captive, with an interest-free period similar to trade credit, some dealers present it with trade payables. IAS 1 and IFRS 18 require separate presentation where needed to understand the financial position, and since 2024 IAS 7 and IFRS 7 require disclosure of supplier finance arrangements, which can include floor plan provided by a party other than the carmaker. See supplier finance arrangements.

How are interest and carmaker support accounted for?

Floor plan interest, at say 6% a year on the balance outstanding, is a finance cost; vehicles held for sale are not qualifying assets, so it is not capitalised into inventory. When the carmaker pays the dealer floor plan assistance, a credit to offset interest on its vehicles, that is a rebate from the supplier: it reduces the cost of the vehicles in inventory and so cost of sales when they are sold, rather than being netted against interest expense. See car dealer revenue.

How does the lender account for floor plan loans?

For the captive or bank, floor plan loans are financial assets at amortised cost with expected credit losses. Because they are short-term and secured on the vehicles, losses are usually low, but concentration on a few large dealer groups and the risk of fraud, such as vehicles sold out of trust, matter. Within a carmaker's group accounts, floor plan to independent dealers is a receivable from customers, and the carmaker has received cash for the vehicles when the captive pays. See captive finance and leasing.

How does US GAAP differ?

US GAAP has a specific split. Floor plan from a lender affiliated with the carmaker that supplied the vehicles is trade floor plan: changes in it are presented in operating activities, so buying stock is effectively an operating outflow. Floor plan from unaffiliated lenders is non-trade: borrowings and repayments are financing activities. US dealer groups present the two lines separately and often show adjusted cash flow measures that treat all floor plan the same way. See IAS 7 vs ASC 230 and automotive accounting.

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Questions people ask

How is floor plan financing accounted for by a dealer?

The vehicles are inventory under IAS 2 and the floor plan is a financial liability at amortised cost under IFRS 9.

Does floor plan financing affect operating cash flow?

Yes. If the lender pays the carmaker directly and the floor plan is a borrowing, buying stock is a non-cash transaction and repayments are financing cash flows.

How is carmaker floor plan assistance treated?

As a rebate that reduces the cost of the vehicles, not as a reduction of interest expense.

What is the US GAAP difference for floor plan?

Floor plan from a carmaker-affiliated lender is trade and presented in operating activities; from other lenders it is non-trade and presented in financing.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 9 Financial Instruments
  2. IFRS Foundation: IAS 7 Statement of Cash Flows
  3. IFRS Foundation: IAS 2 Inventories

Rules and fees change. If you are reading this long after October 9, 2026, confirm the figures with the source before you rely on them.

AutomotiveAutomotive accounting: the key IFRS issuesAutomotiveCar dealer revenueIAS 7Supplier finance arrangements

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This guide is general information. It is not tax or legal advice for your situation.