Automatic Payment Plans – Good vs. Evil

I got a call from one of our clients whom we provide consulting for. “Al,” she said, “I’ve got a problem.” She continued, “I just had a payment rejected for a customer we have set up on an automatic payment plan. I tried to call his cell phone and now the number is no good. We did a field call to the residence address we have on file and the people living there said he hasn’t lived there for a few months.”

“When did you last speak with the customer,” I asked.

“About six months ago when he bought the car and we set him up for automatic payments,” came the reply.

Setting up customers so that their car payments are automatically deducted from a bank account or charged to a credit card is one of the growing trends in dealer controlled financing, but the story above is a perfect illustration of the dangers in this practice. Sure, it’s nice to be able to process half your receivables in a week by simply pushing a button, but if you choose to use this tool, you still must have a process in place to monitor these accounts.

Building a relationship with the customer has been a cornerstone of the car business since the first Model A rolled off the assembly line. The DCF business has enjoyed a greater percentage of repeat and referral business than the retail automotive business because we get to see our customers weekly or biweekly for a year or more. Building a relationship with these customers when they come in to make their payments makes them more comfortable in recommending your dealership to their friends, more likely to buy from you again and more likely to make their payments on time. It also gives the dealer the opportunity to make sure he or she has the customer’s most recent address, employer and phone number on file.

Automatic payment plans make it easier for the customer to pay without spending the time or gas to drive to your dealership. It gives the dealer some sense of security in that they can get their payments from the customer automatically without spending any effort reminding those customers that they have a payment due and need to come in. The good news is that our dealers tell us that most of the people who sign up for automatic payments are those who manage their money best and generally make their payments on time.

The problem with the automatic payment approach, however, is that it totally removes the personal contact part of the relationship. If you just set them up for automatic payments and put the account on autopilot, you lose the opportunity to build a relationship, continually verify the customer’s contact information, and solicit them for referrals and repeat business. You can come dangerously close to becoming just another bill they have to pay.

The answer, then, is to find a way to utilize automatic payments without eliminating customer contact. Some dealers choose to set up automatic payments only on a month-to-month basis; requiring their customers to come in to sign a new agreement at the beginning of every month. Others make sure they manage these accounts by maintaining contact on a regular basis – more calls just to check on how the customers are doing, more promotions that bring customers to the lot on a regular basis, increased use of newsletters or social media sites such as Facebook to maintain contact with the customer, or other methods of staying in contact with all customers to avoid the kind of situation outlined in the story that began this article.

An automatic payment plan can be an important tool in collecting the payments in a way that is convenient for many of your customers. The key is to not let the word “automatic” mean you forget about staying in contact with that customer. Automatic payments are a collection tool, but they should not override one of the most basic tenants of successful collections in the DCF business, establishing a relationship with your customer. While this practice should reduce the number of calls you have to make to customers to get their payments, you should not let it eliminate contact with these customers. The right plan will allow you to take advantage of this technology without sacrificing your relationships with those customers.