Buy vs. Build: Wholesale Finance Software for Floor Plan Lenders

As the floor plan industry grows and becomes increasingly complex for banks to manage, the need for enhanced wholesale finance software has grown exponentially. Banks can no longer rely on manual processes and outdated systems to administer their lending operations. In response, they need to implement technological changes to the way they do business - but the question remains if they should deploy in-house resources to build their own new systems or contract a vendor with a pre-existing solution.

Choosing the right approach will vary depending on the unique circumstances of your bank’s resources and needs for its floor plan solutions. We believe banks need to carefully consider their options before diving into a new software build.

Considerations for Building Wholesale Finance Software

Does your bank already have a robust IT department and experienced software engineers? Do they have a successful track record of building out new software solutions? Do they have capacity to take on a new infrastructure project? Or will you need to hire a team to implement your solution?

Building a new software solution internally will require resources for development and ongoing maintenance. If your bank has an established team, this may be a viable option but assumes they have the bandwidth to dedicate time to a new project. Banks may need to expect longer timeframes for implementation in case of competing internal priorities. This could still be a costly and time consuming endeavor.

Considerations for Buying Wholesale Finance Software

On the other hand, wholesale finance software vendors are highly focused on their niche. They are more nimble in developing features and fixing bugs, especially as it relates to future maintenance. Vendors have already taken the time and monetary investment into researching, developing and testing their software. They often have a holistic view of the industry, ensuring that your bank is leveraging the most effective solutions.

Wholesale finance software vendors can help you scale more quickly - as you need more features or access to certain processes, you do not need to wait for your team to build it out. It can often be as simple as purchasing an add-on or accessing a previously unused feature. However, banks should evaluate the full scope of features available to them from a third-party vendor. If there are specific requirements or sets of features that are unique to your bank that vendors cannot or do not offer, it may be worthwhile to develop them internally.

Additional Considerations

From a regulatory perspective, buying a solution can also help your bank achieve compliance more quickly and efficiently. Your internal team does not have to constantly keep track of updates and spending on legal resources.

Banks must be mindful of choosing the right partner in place of an internal solution. An optimal vendor solution will be able to have flexible and customizable solutions that fit your bank’s needs. Purchasing a software solution that adds complexity will require even more partners or internal resources in the future.

If you have a portfolio and are looking to upgrade how you operate, consider contacting our team of experts today to learn more about the best technology solutions for your inventory financing needs. We are proud to work with Sopra Banking Software to offer a comprehensive, trustworthy, and user-friendly loan management system.

Buy, Partner, or Build? Navigating the Complexity of Introducing Floor Plan Financing

As community banks strive to diversify their offerings and bolster their balance sheets, the introduction of commercial credit products like floor plan financing or wholesale financing should be considered as an attractive strategy. Known for its high-upside, although not without operational complexity, floor plan financing enables dealers of manufactured goods to purchase inventory in bulk and manage their cash flow effectively. The benefits for community banks are manifold - a robust and resilient portfolio, increased deposit growth, new customer acquisition, and deepened relationships with existing dealer customers.

However, the journey towards offering floor plan financing is not without its complexities. The decision boils down to three strategic options: buy, partner, or build. Let's explore the pros and cons of each.

Buy: This strategy involves acquiring a firm that already offers floor plan financing.

Pros: You benefit from an existing customer base, an experienced team, established systems, and immediate entry into the market.

Cons: This strategy often involves a high upfront cost and may include hidden liabilities. There could also be potential cultural clashes between the acquired firm and the community bank.

Partner: This entails forming a strategic alliance with a firm specializing in floor plan financing.

Pros: A partnership provides immediate access to specialized expertise and allows for shared risks and costs. It also enables the bank to offer a new product with reduced upfront investments.

Cons: There might be a potential for misaligned objectives between partners. In addition, banks may have less control over the product offering and customer service.

Build: This approach requires developing the product in-house by hiring and training staff.

Pros: It provides maximum control over the product offering, enabling the bank to customize according to its needs and customer preferences.

Cons: It could take longer to market and require substantial investment in hiring, training, and infrastructure development. It might also strain existing resources.

Launching floor plan financing is not just a matter of offering a new credit product—it's about providing a comprehensive service necessitating specialized operations. This includes title management, on-site audits, interfacing with suppliers, and managing a high volume of funding and collections due to the short duration of receivables.

Given these operational complexities, the need for a comprehensive end-to-end technology system is paramount. Every stage of the floor plan financing lifecycle—from origination to servicing, collections, and reporting—requires sophisticated technology tools to ensure operational smoothness, optimal efficiency, and superior customer satisfaction.

In conclusion, while the introduction of floor plan financing holds considerable promise for community banks, navigating the journey demands strategic clarity. Whether buying, partnering, or building, the decision must be guided by the bank's long-term vision, resource availability, and risk tolerance.

As community banks forge ahead, a proverb comes to mind - 'The best time to plant a tree was 20 years ago. The second best time is now.' This rings particularly true for banks contemplating the introduction of floor plan financing. The path might seem daunting, but the seeds sown today, with strategic precision and foresight, can yield rich dividends in the future.

Managing Internal Systems: Building Efficiencies for Floor Plan Lenders

As companies grow, they often tack on various softwares tools to meet an immediate operational need. This leaves lenders with multiple systems, requiring intense reconciliations to manage lending portfolios like those for floor plans.

Archaic Tech Stifles Growth

Outdated architecture can stifle a bank’s ability to scale its operations as the focus is on supporting existing processes. What starts as a quick fix can often become detrimental to day-to-day operations over time.

Fragmented systems that do not talk to each other opens up significant risk to a lender. There can be duplicated or incorrect data that leads to risk and a lack of transparency into a situation.

Employees may find it difficult to understand the data, or it may undermine client trust in the lender. Analysts may also spend hours of time on workarounds and manual processes when their efforts would be more valuable elsewhere.

The Right Software is a Force Multiplier

Banks should focus on transforming their infrastructures to build efficiency, particularly in floor plan lending processes. Floor plan lending is a complex product that requires multiple data sources - whether that be titles, audits, or payments. The multi-party nature of the business leaves banks open to having to manage data flow from a variety of sources.

By consolidating systems and aggregating data into unified dashboards, banks can improve their day-to-day efficiency in managing floor plan lending. Analysts can focus less on burdensome data cleaning exercises and instead focus on growing their community relationships with bank clients. Banks can save on operational costs and potentially cut unnecessary, underperforming systems that no longer serve them. Customers can also receive information they feel is accurate more quickly, enhancing their experience and trust in the bank.

Lenders should work with their IT department to identify the key pain points and milestones they are looking to achieve. They should evaluate the current scope of systems being used to manage floor plan lending and consider where bottlenecks are occurring. There are a handful of third party vendors that may be able to help improve efficiency across their floor plan programs, including Vero Technologies. We have designed VeroOS to eliminate the need for multiple systems and provide a holistic approach to a bank in managing the entire scope of floor planning.

If you have a portfolio and are looking to upgrade how you operate, consider contacting our team of experts today to learn more about the best technology solutions for your inventory financing needs. We are proud to work with Sopra Banking Software to offer a comprehensive, trustworthy, and user-friendly loan management system.

Vero runs floor plan programs on VeroOS, its wholesale finance software, from application to payoff. New to the model? Start with what wholesale finance is.