Show Me The Money

Generally, funding delays will fall into one of the five categories—lack of organization, poor attention to detail, carelessness, an over-aggressive spot delivery policy, and finally, the inability to read credit and match it with lending guidelines. The first four causes can simply be addressed with better systems and policies—they are all avoidable delays. They can be fixed quickly and easily. The fifth—the inability to read credit—is something that must be trained and unlike the others, can take time to hone.

So where do you begin? While it may be unpopular with some of those that read this column, the first place to speed up the process is with the commissions. Many years ago I quit paying commissions or bonuses until a deal funds. Once a customer takes delivery, the salesman’s motivation to deliver any necessary steps that were not available at the time of delivery drops to virtually nothing. Amazingly, so does the motivation of the sales team to round them up once they have been paid. In addition, while your department is chasing that last pay stub, customers invariably lose their job, have their phone disconnected or the vehicle suddenly develops a problem. Years ago when I first changed the policy (after having to unwind a number of “almost” deals) the funding times dropped by about 96 hours—almost overnight!

With that hurdle crossed, I strongly recommend developing checklists for both the sales representative and the finance desk. Face it, every time you deliver a Special Finance deal you are practically forced to kill a tree due to all the paper required. It is so easy to miss even the most obvious requirement. With checklists, the process becomes more regimented. This means that in the heat of the deal, you don’t accidentally mis-contract, or forget to get references, proof of residence or sundry other items.

Having also owned a mortgage business, I have learned how necessary it is to have each loan packed neatly and consistently with all documents in a particular order. Checklists will ensure that you both have all the documents necessary to fund, and, that they will be assembled in a clean and consistent fashion that the lenders appreciate. Think about it, if you were funding a deal, wouldn’t you prefer to reach for a package from a dealer that you expected to have the documents assembled completely, orderly and legibly? Those deals get funded quicker, and, occasionally a funder will even overlook a missing step, as they have become accustomed to everything being in perfect order from a particular dealer.

Next on the list, look at the flow of the paperwork and identify existing bottlenecks. Often, it can be as simple as where a deal jacket gets put aside awaiting a call-back, or gets stuck on a desk for a day or two while being booked into accounting. The important thing is to find where the bottleneck is, put a system in place to avoid it, reduce it to writing and distribute it to everyone that is involved with a Special Finance deal.

One of the simplest systems that can avoid the unpleasant occurrence of deals being kicked back once received by a lender is to take a few minutes and actually make the call to verify employment and residence. You know that the lender is going to do so. Wouldn’t you rather find out about an undisclosed deal-killing job gap at the onset, as opposed to a week or so later when the deal arrives back at the dealership?

Another simple system is to track the contracts in transit daily by means of a log, a daily operating control sheet (DOC), or “heat sheet.” One of the most important tasks is to call on every deal, with every lender, every day. That doesn’t mean just look them up online and check their status. It means talking with the funder, and inquiring on the status of every deal that you have sent them. That starts with verifying that they actually have the deal in-house—occasionally a lender will lose a deal internally after having signed for it from your overnight carrier.

The manner by which your contracts are funded is also an important step in the process. Those dealers that are using funding electronically (Electronic Funds Transfer or Automated Clearing House) will usually receive their money quicker, save return shipping charges and have the money considered collected funds by their bank. Opt for EFT or ACH processing wherever possible.

Another tip—when dealers are processing a larger volume of contracts and employ a finance assistant that helps oversee funding, incentive bonuses have been effective in insuring the job is done timely. Generally a smaller base pay loaded with incentives based on average funding time works well. Just make sure that if you opt for this method, the bonus is easy to track for both the employee and for the person responsible for tracking it.

Finally, when addressing the first four causes for funding delays, judgment comes into play, or more precisely, bad judgment. Spot deliveries that shouldn’t be spotted are the source for both delays in money and monumental headaches. A dealership, in my opinion, is not being aggressive enough if they never have to reel back in a deal. It is when it becomes the rule and not the exception where bad judgment becomes the issue. Even if the deal is re-contracted, at best you have delayed your money by another 72 hours (or more).

Ultimately, there needs to be a system in place to review the whole deal, and there should be more than one person to sign off on it—if for nothing more than to make sure you are contracting the customer with the lender that will most likely take the deal. What people fail to realize is that the dealership has more at stake than just the delay of funds. Federal bankruptcy law requires that a lien be perfected within 20 days, or, if the customer files bankruptcy within the first 90 days after buying the vehicle, the lien is vacated. The lender loses the collateral, and the dealership gets to buy the vehicle back. Definitely not pleasant.

The last area of delays is somewhat related to the judgment issue, and is a more difficult area to correct. The inability to read a credit bureau, look at a Customer’s Statement, and match it to the guidelines of a lender is something that cannot be addressed by a checklist or system. I have seen (and unfortunately hired) some people that are very intelligent but simply can’t ever seem to learn how to logically deduct which lender a particular customer matches up with. Certainly services like Household’s SuperHighway and DealerTrack can help, but if a Special Finance Manager is relying solely on a computer or scoring system to make the decision, they are going to miss a significant amount of business. Training and experience are really the only two ways to fix this. A dealer or director just needs to monitor the progress of the SF Manager and know when to fish or cut bait.

After all this is said, what is the ideal length of time the funding process should take? While each dealership works with a different array of lenders—some local and some at a distance—the delivery time to those at a distance is the key. When working with local lenders, 72 hours is the benchmark. For those contracts that are being overnighted, six to seven days is the benchmark for Special Finance deals from the day the deal is contracted to the day you have funds in your bank. While due to shipping time, verifications, weekends, and the banking system, it is rare to be able to consistently shorten that time frame, it is a time frame that you should also expect to be paid within.

There are certainly more ways that Special Finance departments can get their lender to “Show Me the Money,” but these are some of the simplest that can help dealers immediately speed up the process. If some of you in the trenches would like to forward me additional ideas that you have, I will be sure to pass them along in future issues as well. Until then, Good Selling!