Floor Planning

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DEFINITION of 'Floor Planning'

A form of financing pertaining specifically to inventory. A lender will purchase the inventory from the borrower and as the inventory sells, the borrower will repay the debt. It is essential that the creditworthiness of both parties is established and that a procedure for if the inventory does not sell is in place before the lending takes place.

BREAKING DOWN 'Floor Planning'

This type of financing began in the automobile industry as the purchase price for vehicles was high and standard financing was hard to obtain. Its popularity spread to home appliances and finally to large-scale home electronics such as personal computers.

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RELATED FAQS
  1. What are the generally accepted accounting principles for inventory reserves?

    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Full Answer >>
  2. What do people mean when they say debt is a relatively cheaper form of finance than ...

    In this case, the "cost" being referred to is the measurable cost of obtaining capital. With debt, this is the interest expense ... Read Full Answer >>
  3. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  4. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  5. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

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