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Fast Funding Still Expected in Special Finance: Eights Simple Steps Will Keep Cash Flowing Even in More Stringent Times

When the tide recedes in the special finance world, finance companies as a whole tighten their programs and become more conservative. Not only does it become more challenging to get deals approved, but the process of turning contracts to cash becomes more difficult as well. This is about as enviable as flies on honey. When this happens, my inbox and voicemail fill up quickly with questions, comments and concerns from dealers and SF managers worried about what is going on with the finance companies.

To say that Special Finance managers over the past couple of years have enjoyed smooth sailing would be a gross understatement. In all the years I’ve been around the SF industry, I’ve never seen the number of waived stipulations or as aggressive competition as I saw throughout 2006 and the first nine months of 2007. While it is still hard for me to not to view world through dealer-eyes, it is hard to deny that the climate was almost silly. As a result, if you couldn’t get contracts cashed timely in that environment, you are in for big trouble now.

The good news is, the techniques needed for timely funding haven’t changed over the years. Although you may have gotten used to having certain stips waived or ignored due to strong relationships or aggressive competition among the finance companies, if your funding practices have always been based on a solid foundation, you will still be able to turn your contracts–in-transit (CIT) to cash in a timely and efficient basis.

Before I go any further, this article is written with the average SF department in mind—one that employs one or two people and is doing eight to 20 deals per month. Past that volume, you begin to reach a level that requires some additional people and/or components, which I don’t have space to detail here. You can e-mail me at [email protected] for questions beyond that level.

Fast funding for most dealers can be tied down to eight steps. They are:

1. Culture
2. Relationships
3. Verification
4. Checklists
5. Delivery
6. Review
7. Packaging
8. Follow-up.

While this may seem laborious, consider two things. First, time is money; you can’t afford to waste it. Second, it will take you three times as long to clean up a problem than it will take to do it right the first time. Let’s examine each step.

Fast funding must be the culture of the dealership. For some dealers, that means a significant change of policy. Every dealer must set their own internal standards and insist that they be met. As a dealer, I preferred the three-six-ten rule. Deals had to be approved as contracted within three days of delivery (that allowed for weekends), and all required documents had to be in the store within six days of contracting. Finally, we had to have a funding fax within 10 days.

If any of those points on our timeline were missed, the deal was unwound, or upper management had to approve an exception. Exceptions were also watched closely, so that they did not become the norm.

Never underestimate the value of your relationship with the funder. Get to know them. Kindness goes a long way. Their job is one of pressure from both sides – the dealer and their own company – and they spend their day in a cubicle with deals piled around them or staring at endless screens of scanned documents. Thank them, and make it easy for them to want to grab your deal ahead of the others that were dropped on their desk that day. An occasional surprise pizza or sub sandwich can go a long way toward helping them remember you over the scores of other dealerships they also work with.

The single biggest reason that contracts are returned from finance companies are surprises – most often avoidable – where job tenure, residency, insurance, etc., are different than what is stated on the application or term sheet. How do you avoid these surprises? Do your own verifications.

Agreed, it is not always possible to verify everything before you deliver the vehicle due to time of day and day of the week, but if you are doing no more than an average of one deal per day, you have a fair amount of time. (Former BHPH dealers fully understand the importance here.) You should place a call to the employer, landlord, possibly past employers, even references (depending on the how “sub” a subprime the buyer is). Finally, don’t forget to call their home phone number. Is it still in service? Rest assured these are all calls the finance companies will make.

You should also verify the pay stubs. Does the gross income match the amount on the application? Are taxes being withheld? Do the taxes withheld calculate correctly to the gross income? Does the YTD gross income match up with what it should be if the person has worked as long as the application says they have? How much overtime shows on the stub? The finance company will certainly check this.

How about the insurance? Is it in force, with the correct lien holder as a named insured and correct deductible? (This is not a surprise you want, especially on a cold, icy night.)

These are just some of the surprises that can be avoided if you have the discipline to do some quick due diligence before the vehicle ever leaves the dealership. If you decide not to, then for heaven’s sake, be sure to do it before you package and ship the deal.

Use checklists to help you stay organized. We had all sorts of checklists, and I have seen countless others from strong SF dealers I have worked with. Create something that will allow you to know A) that you have all the necessary stips that you need to fund and B) that the customer has signed all the documents necessary to both sell a vehicle and fund the contract. We used separate checklists for both the sales personnel and the finance office to ensure we had everything we needed.

Next, when packaging the deal to ship for funding, use the checklist supplied by the finance company. If it is on their checklist, you are going to need it, plain and simple. The time to find out about this is before you ship the deal.

Once you deliver the vehicle, it is much more difficult to get any missing stips from the customer—exponentially more difficult. For that reason, when at all possible, we would send the salesperson with the customer in the vehicle they were buying to the customer’s home or work to collect any missing stips (and often additional down payment). Additionally, we would almost never deliver a vehicle without proof of income and residence. The payment-to-income ratios have become even tighter over the years, so in my opinion, to deliver without being able to prove income is reckless.

If you choose to deliver the vehicle with missing stips (and we did frequently), then you must have another checklist to give to the customer. It should have a fax number where the customer can fax missing documents, and could even contain a time deadline. We had them sign it and we kept a duplicate, although it would likely hold no legal recourse. Your goal is to keep the urgency as high as possible in order to get the missing documents immediately.

I learned from my mortgage business that funding packages had to be immaculate. It is no different in the auto finance world. As stated, we would use the finance company’s checklist, we would put all the documents in the order listed on the checklist (all in the same direction), staple or attach them, and finally stamp sequential numbers on them. A funder would look at the package and expect it to be complete and correct. Do this repetitively and they will grab your deal over another dealers’ because they will come to expect your deals to always be clean.

If at all possible or feasible, have a second set of eyes review the package before it is sent, using the same set of criteria utilized by the person who originally packaged the deal. In particular, look for missing or non-matching documents. Verify amounts on the contract. Do they match the approval? In the average store, the SF manager may be doing the initial packaging and can be too close to the forest to see the trees, or in this case the missing pieces.

We had a policy that didn’t change for all the years I was in special finance. We had to follow up with every finance company on every deal, every day—period. I didn’t care what DealerTrack or a company’s Web site told me. I expected verbal communication daily. Mistakes happen on both sides. For example, it is not unthinkable for a deal contracted with Capital One to be errantly put in the overnight package to AmeriCredit. It is also not unheard of for a finance company to lose your funding package after they have signed for it. Being proactive, as opposed to reactive, will often save you many days in funding, regardless of on which side of the fence a mistake occurs.

This follow-up should include a solid system that can be understood by anyone in management to track where the deals are and determine their status at a moment’s notice. Monitor your performance daily against your expectations and make corrections as needed. Before long, you will have your funding trimmed to the benchmark of seven calendar days from delivery to cash in bank—even in these times of more stringent scrutiny.

Until next month,
Fund them quickly!

Vol 5, Issue 8


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