Buy here pay here is a very personal business. The moment you forget that simple notion is the moment you will start to lose your perspective on perhaps the single most important element of success in lending. People borrow money because they need it, and if you’re lending it, you better know what the money is for, why they need it and most importantly, how they plan on paying it back. You need to know the personal details for every deal and every customer. Otherwise, it’s just a numbers game with high-risk borrowers.
Don’t get me wrong. I am an avid numbers junkie who fully understands and advocates the use of performance management metrics. However, metrics and reports only tell you what the score is, and in BHPH, the score is all about dollars collected (something I don’t particularly like to risk). A personal relationship with your customers will help keep you informed and the payments coming in.
We have expanded this basic concept and put together what we call the 10 Fundamentals of BHPH Collections. You will notice that the first eight are all founded on people skills.
10 Fundamentals of BHPH Collections
1. Constant Customer Contact and Communications – This is measured by “recency.” The organization must stay in constant contact with all accounts and keep the “two-way” lines of communication open so that the collections managers always know what is going on with the customer’s ability to pay, as well as the status of the collateral.
2. Situational Awareness “Tactical Management” - Collectors must maintain high situational awareness with each account and react “tactically” to any adverse event that may have an impact on collections. They must also know how the total portfolio is performing on a daily basis to discover any trends. There is no room for surprises in collections.
3. Close the Sale Strong to Set the Tone – A collections counseling interview must be accomplished with every customer prior to accepting delivery of the financed vehicle. The customer must be made aware of payment procedures, expectations and consequences so there are no doubts about the transaction and agreement in which they are entering. This is a partnership between the collector and the customer.
4. Say What You Mean, Mean What You Say – There is absolutely no room for weak appearances to delinquent customers. Stick to the agreements made with customers and never hesitate to take adverse actions, especially when the customer breaks a promise or commitment. You need to have a reputation of being fair but firm.
5. Realistic Flexibility – The goal is to keep the customers in their cars and paying. However, life situations change with people that impact their realistic ability to pay. A collector must maintain situational awareness and then use professional judgment, flexibility, and old fashioned “common sense” to keep delinquent deals together, even at a lesser payment amount than was contracted. Repossession is only a last resort.
6. Negotiation Skills – Sub-prime customers are expert negotiators, particularly when there is more money going out than coming in. Collectors must possess the same shrewd negotiating skills to aggressively collect payments.
7. 10 References – There must be at least 10 verifiable personal references for every contracted customer. It is amazing how the personal network of friends and family will help you locate the vehicle when the customer stops paying. I believe it’s usually because they owe these people money too.
8. Payday Payments – Customer payments must correlate with their paydays. If a customer is paid weekly, their car payment must be made weekly, bi-weekly, and so on. The idea is to be first in line on payday for your payment. Otherwise the money will be spent on other things.
9. Compliance – Collectors must be experts on all Federal and State lending and collection laws and procedures and work diligently to ensure 100% compliance with all directives. The Fair Debt Collections Practices Act is straightforward and will get you on the right track. But you need to know every minute detail for what is required by the State and leave no room for misinterpretations, especially when it comes to repossessions.
10. Underwriting Guidelines – Underwriting guidelines were devised to aggregate the performance of an entire portfolio. There is no room for “gut check” calls and exceptions. Stick to your guidelines and your portfolio will perform as expected. If you deviate from them, I promise it will only cost you money in the long run.
I absolutely love the car business, especially today! But one thing that gets me fired up more than selling cars is collecting money from customers I loaned to for the purchase of a car. As a BHPH dealer, you constantly have to be on your toes, know what’s going on, and keep track of the money, especially the money you are collecting. If you master BHPH Collections and keep every deal on a personal level with your customers, it can be a very rewarding livelihood.
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