Automobile Sales & Finance

Finance For Sales people

Course Content

Stocks in Hands
• Direct Import of Auto (exchange rates etc) – advantages/limitations
• Local LC and its impact on Stock cost
Invoices to Customers
• Effects of Rebate/ Refund on Invoicing
• VAT, WHT, Income Tax application in Auto business
Bank Finance for Customers
• Type of facilities for Vehicle & Asset Finance;
• Document Requirements;
• Approval Stages/ requirements
• Disbursements/Charges
• Interest rates (fixed/floating)

Stock Ageing and Exchange Rate effect on it

Stocks : Direct Import of Auto

Afri Ventures Charges Interest on USD paid to Foton from

KNL Auto till it pays back the money

Foton
Manufactures
Afri Ventures Dubai
Vehicles and ships KNL Nigeria sells
gives Order to
them to KNL and pays back to
Foton and makes
Nigeria and Afri Ventures Dubai
the payments
receives money
from Afri Ventures

KNL Auto sells the vehicle in Naira and pays

back to Afri Venture in USD
Direct Import of Auto (exchange rates etc)
Advantages Disadvantages

Low interest rate on financing Exposed to Exchange rate variations

compared to Nigeria Banks financing

When Exchange rate is stable, we offer When Exchange rate depreciates, then
lower prices than competition taking you get less USD for the same naira and
financing cannot send the full money back and
end up making loss.
Local LC
Advantages Disadvantages
Costing is fixed over a period of time High interest rate

Safe in high exchange rate variation We cannot carry stocks for long with
banking system local borrowings
Invoices to Customers

• Effects of Rebate / Refund : Increase in VAT & Income Tax liability.

• VAT, WHT, Income Tax application in Auto business

VAT : a tax on the amount by which the value of an article has been
increased at each stage of its production or distribution.
Invoices to Customers
WHT : A withholding tax, also called a retention tax, is a
government requirement for the payer of an item of income to
withhold or deduct tax from the payment, and pay that tax to the
government.
Bank Finance – Local Borrowings
Document requirements
Application Letter

Duly completed application form

Duly completed loan agreement form

Proforma invoice from Kewalram Nigeria Limited

6 months statement of account

Utility Bill i.e. PHCN, NITEL OR Water Rate bill

Means of identification i.e. Driver’s license/ International Passport/ National ID Card

1 Passport photograph

Letter of Undertaking to notify bank in the event of change of address, employer or relocation abroad
Bank Finance – Local Borrowings
Letter of authority to the Bank to insure vehicle comprehensively at own cost through FBN
Insurance Brokers

Opening of Current Account (for non First bank customers)

Letter of undertaking to domicile business proceeds into First Bank Account no. ……………(for
private individuals or companies)

Certificate of incorporation and Article & memorandum of Association (copies)

Board Resolution to borrow

Cash Flow

Company / Director’s profile and business experience

Additional Income/ Businesses

Bank Finance – Overseas Borrowings
Lower interest rates (less than 10%)

Repayment in USD or Euro or agreed foreign currency

Loan terms from 3 – 5 years

Payment guarantee by a local bank in most cases

Fixed monthly USD payments to the overseas financer

Good option
• when Exchange rate is stable,
• your repayment cost is fixed in Naira as your earning/profit is also fixed in Naira

Very bad option

• when Exchange rate is volatile, you will do business in Naira at fixed profit which may wipe out
when repayment is done if exchange rate is falling
• as you will spend more Naira for the same USD monthly payment
Stock Ageing & Its impact on Price
Direct Import Case
• If exchange rate is stable
• Low interest cost, you can carry stock for a longer period
• If exchange rate is falling
• Immediately sell the stock as you will get less USD for same Naira
unless price is increased

Local Borrowings
• High interest rate will limit the stock holding period
• Limit on investment in stocks due to limitation on working capital

Ideally, we should rotate stocks twice in one year.

Hence stock holding should not be more than 180 days.