The other day, I overheard a conversation between a Buy Here Pay Here Dealer and a friend of his that went something like this:
“You, my friend, are in one of the simplest businesses in the world. You go to the local auction once or twice a week and buy some of the cheapest cars in the industry. You bring them back to your Buy Here Pay Here lot, mark them up 10,000 percent and then sell them and collect 18 percent + interest on top of the 10,000 percent mark-up, and you’re done.” Sounds pretty simple, doesn’t it?
Let’s not forget that the Buy Here Pay Here business is all about “Collections.”
We must understand that the collections process starts in the sales department, gets more intense in the credit department and continues in collections where it becomes an ongoing process until the loan is paid in full and customers become repeat customers and bring all family, friends and relatives in to buy a car from you.
The salesman’s job is to start the process by interviewing customers and making sure that they are in the right vehicle. Through this process, the salesman must not only find a vehicle customers like, but he also must make sure each individual customer can afford the payments.
Once this is accomplished, the credit manager must review the deal structure and make sure customer payments are affordable, fit into the monthly debt to income ratio and coincide with each customer’s pay period. If a customer is paid weekly, his payments need to be weekly. The goal here is once the customer is paid, he or she will come to you to make a payment putting everyone else second.
The collections department then gets a chance to review the customer’s credit application, verify all customer information and check out references including relatives.
Once all of the above steps are complete and a customer drives away in their new vehicle, the collections department might want to make a welcome call and/or send a welcome letter. Remember, the first call is to establish rapport with and let customers know you are there to help in case they run into any problems. The next day, you might want to have the collector call the customer and review payment arrangements and due dates. Keep the conversation with the customer professional, and make sure to let every customer know you are there to help. The main objective is to make customers feel comfortable enough to call you – instead of ignore you and your calls – when they have a problem.
After a customer’s payments begin, collections is all about follow-up and making sure the customer is making payments in a timely manner. You must contact customers the day a loan goes past due. You must then work to verify why the payment was not made and what it will take to return the account to current status. Remember, we must handle ourselves in a professional manner at all times and let customers know we are here to help.
In today’s economy, with the prices of fuel and energy, many Buy Here Pay Here dealers are facing some of the worst months ever in terms of collections and repossessions. Both voluntary and involuntary repossessions are sky rocketing, not to mention, bankrupt accounts (fallout from unsuccessful plans filed last October) are being dismissed, and many other accounts are being tagged for charge-off.
Dealers are struggling to find ways to work with customers that want to keep their vehicle but just don’t have the money to keep up with their payments.
You might also want to conduct weekly collections meetings and do some role playing on the above situations. Help your collections department understand how to work with these types of customers in order to resolve the problem while working to get the customer and the account back on track.
Collections doesn’t stop here. Whether you are looking to grow or just maintain the accounts you have, you might want to look into getting involved with your peers and sharing your ideas and suggestions in a Buy Here Pay Here Dealer 20 Group.
Here, you will compare your operations and share what’s working and what’s not. You will review Adjusted Gross Profit and Expense Analysis, Sales and Gross Detail, and Loan and Cash in Deal Breakeven Analysis. You will also compare your Vehicle Inventory Analysis, Accounts Receivable Analysis and Employee Productivity. Discussions will also cover how many collectors you have and the number of accounts each collector is working on a monthly basis. You will review your past due accounts and learn if your repossession or charge-off accounts are too high. You will have the opportunity to exchange collector pay plans and bonuses or incentive programs for collectors. What better way to tackle these problems than with 19 other dealers that are looking for ways to better educate themselves through networking with one another.
Speaking of education and networking there are several education opportunities throughout the year covering topics such as how to improve your underwriting, how to increase your cash flow, and it will teach you how to learn from your losses and avoid fatal pitfalls.
Vol 3, Issue 10
Lending Tree’s most recent auto finance snapshot finds originations, amounts financed, and monthly payments all accelerated in 2018.