I often begin our collections training class by asking students what the most important collection tool is at their respective dealerships. I get answers ranging from the telephone to the tow truck, but I have never had a student give me the right answer.
The correct answer is the application. That’s right, if you want to successfully collect the loans or leases you make to your dealer-controlled financing customers, it starts way before they make their first payment. It starts with the application. Gathering enough of the right information will make your collections effort run much more smoothly.
There are two keys to taking a proper application. First, collect enough information. I have seen dealers who collect just the typical five-line application?name, address, phone number and Social Security number?and that’s it. How can you possibly make a lending decision based on that limited information, much less collect on that account effectively?
You need to collect sufficient information so you feel comfortable you can make contact with that customer no matter what. That should include at least three years of residence and employment information and as many references as possible. The more points of contact you obtain, the more likely it is that one of them will know how to get in touch with your customer.
You also need to make sure your customer can afford to make his loan or lease payment when it comes due. In order to determine this, you need as much information as you can get about the customer’s monthly budget. When you add up his rent, utilities and other monthly expenses, then subtract that from his net income, there should be enough left over to make your payment or you are setting your customer up to fail and creating a future collections problem.
The second key is to collect the right information. I regularly see dealers who allow prospective customers to complete their own applications. This is a surefire way to get the wrong information. Customers who complete their own applications will give you the information that looks best and leave out the information that might make them look like a bad risk. They tend to leave off those short-time residences and jobs and expand residence time, job time and income. They surely aren’t going to tell you about a previous repossession or bankruptcy. In order to make an intelligent lending decision and then successfully collect on the account, you need all the information. Taking the application yourself gives you the opportunity to probe for all the information.
You also need to verify that information. Collecting proof of residence and income helps you make sure you have the right information. But this information can be misleading, as well. Remember, utility bills and paycheck stubs are a snapshot in time. They were true when they were printed, but they may not be true today. You need to call landlords and employers to verify the information on those documents. I have never forgotten that lesson since I learned it more than 10 years ago as a new manager at a BHPH store. I was calling an employer to verify employment, and he hesitated when answering my question on whether the customer was still employed there. I asked if there was any problem, and he told me he was laying off my potential customer later that day. If I had accepted the paycheck stub as the whole truth, I would have had a customer with a new car who was almost instantly unemployed.
The right information should also include any information on previous vehicles and how they were purchased, including any repossessions. An understanding on how your customers have handled previous vehicle purchases can give you valuable insight on how they may handle their obligation to you.
I talked previously about collecting references, but just gathering names and phone numbers is not sufficient in and of itself. You need to learn how the customer knows each of their references. That will help you to determine each one’s value as a resource for making contact with the customer in any given situation. You should also verify that each reference does, in fact, know and have good things to say about your applicant. Collecting names and phone numbers does you no good if you don’t talk to the references until you need to make contact with your customer. That is a bad time to find out all the numbers are no good or that the reference hasn’t spoken to your customer in years.
Collecting the money due you and your dealership is the most critical part of any dealer-controlled finance operation. Cash flow is the life blood of your business. Don’t start out in a hole by neglecting to get all the information you can when you begin your relationship with each customer. Taking a thorough, complete and verified application in the beginning can make collecting that account much easier throughout the life of the loan and save you from the pain and heartache of repossession at the end.