Underwriting is the first and most important way to control delinquency. You have to determine the amount of risk you want to endure and design your underwriting to fit that business model. You should sell vehicles that are in a price range aligned with your risk model, so that your losses are tolerable and the customers you are selling to are happy to pay for the vehicle after they purchase it. We have a strong closing with visual aids to help the customer remember what they agreed to.

After approval, we start with a handwritten document with which the salesperson and customer discuss trade figures, pickup payments, regular payments and dates (always paydays). The handwritten page is kept on file; when disagreements ensue during collection efforts, producing that handwritten page usually ends the argument quickly. Most of the time when a customer disagrees with being late it is not about your actions as a dealer. It is usually about their job situation or ill-advised spending when they should have paid their bills first.

The second most important way to control delinquency is to make sure your collector is being diligent and organized. If a customer cannot pay the full payment due, your collector needs to receive a payment agreement from the customer when they call or come in. Whatever that agreement, your collector must follow up and attempt to make the customer adhere to it. Flexibility comes from agreeing to change payment dates when paydays change. We will help customers who have fallen behind by waiving late fees or deferring payments for them if they prove the reason given and follow an agreement put together between customer and collector.

Remembering that you are dealing with human beings is important. This requires flexibility, with a dose of skepticism. Look at Black Friday as an example of how many of my customers think. Some of our car payments got spent between midnight Thursday and lunchtime Friday. We actually had employees who were out shopping see our customers loading up baskets at Walmart after they had called us to say they wouldn’t be making their payment for a myriad of reasons, none involving a new TV. We expect to be lied to. We ask customers to bring proof of whatever story they are telling in exchange for the forgiving of a late charge or in some cases a deferred payment.

In our operation, I am the only person who can physically make account changes. This way, I am involved in the decision and the collector has me in the back of her mind while talking to someone about an account. If the customer breaks two or three agreements, we pick up the vehicle in an attempt to show the customer we are serious. In many cases the payments on the redeemed repo will be paid more consistently in the future. Do not allow your customers to think you are the easiest of their payments to miss while they pay other bills or buy lottery tickets.

Thirdly, the way you handle mechanical failure plays a huge role in your delinquency rate. If the car won’t go, they won’t pay. You have to decide how you are going to handle breakdowns and make sure your customers understand your policy so expectations are controlled later. We have a 24,000-mile extended service plan on 98 percent of our loans. This program covers far more than just the power train and allows our customers to get repairs done for a small deductable while our shop makes a profit. The ESP has nationwide roadside assistance and towing so our vehicles are not left on the side of the road or in a parking lot. Even if the expiration date or mileage limit has passed, many of our customers still ask if they have coverage, which informs us of a problem quickly.

Controlling delinquency is about anticipating the problems that arise in our business and having policies in place to deal with them. In most cases, delinquencies are personal customer issues projected onto you. Making certain your people know what procedures to follow in each situation can help keep better control of your portfolio performance.