As an industry analyst and trainer, I travel the country meeting with and training dealers, collection managers and collectors in the art collecting Buy Here-Pay Here notes. I also read books, buy videos and attend seminars, myself, to ensure that I am the best trainer I can be. I am too often sadly disappointed in these training sessions I attend because the focus of the education is centered on how to repossess vehicles, sue customers and create income through recovery of bad debt. I must say that although the information provided has some value, those trainers miss the point of true collecting. The art of quality collections is the ability to collect cash, not cars. Great collectors and collection teams collect cash and in turn “repossess their customers, not their cars.” I have compiled a long list of “do’s and don’ts” regarding collections and I would like to share a few.
Do Require Payday Payments – We want our money when our customers have money and the only time we are assured they have any cash is on their paydays.
Don’t Set Up Monthly Payments – Our customers cannot manage money as a rule and their ability to accumulate a monthly payment is iffy at best. Secondly, it is much more difficult to collect two monthly payments than it is to collect two weekly payments when our customers fall a payment behind.
Do Require Co-Buyers – Co-Buyers are most often defined as the Buyer’s spouse. Co-Buyers truly see the value in keeping the vehicle because of the value associated with the vehicle. That value is defined as the Buyer’s transportation to and from their job. Co-Buyers typically use the vehicles as well as the Buyer.
Don’t Request Co-Signers – Co-signers differ from Co-Buyers in that they are signing on the loan as a goodwill gesture for their “friend or family member”. They do not really intend to pay in event of default and in many cases, do not possess the means to pay in those situations. Also, two people with bad credit do not make one with good credit.
Do Pull Credit Bureaus as a Part of Underwriting Process – Credit bureaus contain very valuable information about your applicant that goes well beyond their credit history. We can use the bureaus to accurately assess the honesty and integrity of the customer’s application for credit.
Don’t Deny Credit Based Solely Upon The Credit Bureau Report – Poor “Beacon” scores and bad credit are the primary reason your applicant is at your dealership. They also typically have multiple repossessions whether the bureau states that fact or not. We would like to see how the applicant deals with car credit but are not overly concerned with medical collections, student loans and charged-off credit cards.
Do Offer Service Contracts, Warranties and Vehicle Maintenance Programs – Programs that encourage well-maintained and mechanically-sound vehicles benefits our customers and our loans. Cars that run produce loans that pay.
Don’t Sell Worthless F & I Products – Many F & I products that are revenue enhancements in a conventional retail deal do not have much value to our customer, and we typically must finance the premiums on our customer’s behalf which can be a cash flow burden.
Do Call Customers When They Are One Day Late – We must begin the collection of our loans each time our customer becomes one day late to ensure customers don’t get away from us or get too far behind on payments. It is much easier to collect an account that is two days past due than one that is thirty days past due.
Don’t Send Collection Letters – Other than letters required by state and federal law, we don’t send letters as a collection tool. They have no meaning to our customers and are typically never even opened. Letters are too passive and just delay the inevitable phone call.
Do Require In-Person Payments – In-person payments allow us to form relationships with our customer, view our collateral on a regular basis and ensure cash payments.
Don’t Allow Mail-In Payments – Mail-In payments do not allow for personal relationships, come in the form of personal checks and money orders that can bounce or have stop-payment orders placed on them.
Do Cash Payroll Checks – Payroll checks very seldom bounce and cashing them ensures that we will be the first creditor to get paid every pay cycle.
Don’t Allow Personal Checks – Personal checks bounce often and we are typically not notified for several days allowing our customer to ride for free and more importantly get further behind on their payment schedule.
Do Make Payment Arrangements With Your Customer – We must allow our customers the ability to make arrangements to cure their delinquency over a matter of a few payments from time to time so that we don’t inflict additional financial pain by requiring all payments be made at one time. We must also understand that our customers will fall behind on payments from time to time.
Don’t Allow Customers To Break Their Promises – We cannot allow “second promises” to be made over the telephone. We must require that the customer who breaks a promise visit the office to discuss the payment issue and their inability to live up to their promise. The in-office visits allow us to make written payment arrangements, discuss the payment issues face-to-face and allow us to take the collateral in the unlikely event that we cannot negotiate a satisfactory arrangement with the customer.
These are just but a few do’s and don’ts in the process of underwriting and collecting your Buy Here-Pay Here loans. Adherence to these simple tips can greatly assist in collecting the maximum amount of cash with the minimum number of repossessions. I look forward to offering more underwriting and collections “do’s and don’ts” in future articles.
