For those that aren’t faithful readers, here is a quick snapshot of what we covered the past two articles. The overall premise of this series is that for Buy Here Pay Here (BHPH) dealers. The relationship we have with our customers in many ways mirrors a successful marriage. Of course in BHPH, it’s not “Till death do us part” (hopefully), but rather “Till payoff do us part”!
First, we talked about some tips to improve the underwriting process, and then in the last issue, we covered some techniques that will help the collections process be more effective before the loan ever becomes past due. This month, we’ll try to put a tidy little bow on the series by going one step farther and looking at ways we can improve our collections before the vehicle ever leaves your lot.
Strong Close & Call Sheet. When I was underwriting all the deals for our companies, this was a phrase I used a lot. Essentially what I was telling the salesperson was, “I’ve done everything I can do to strengthen this deal, and I am going to take a shot by approving this customer. NOW, I want you to go lay the proper foundation for the collection process before he leaves.” Remember, if the salesperson has done their job properly, they have developed a good relationship with the customer, so they are the natural one to give the strong close. I’ve also seen it done effectively by the Manager.
When we ask for a strong close, we want the customer to be told firmly, yet courteously, that we are willing to stick our necks out and extend this financing to them. In exchange they need to make their payments every week on time, or the vehicle will be repossessed. If the customer was riskier than most, they would get what came to be known as the “Fear of God” close. Very rarely will a strong close cause you to lose a deal, however in the event that it does, don’t despair. More than likely, you just saved yourself a future repo, and you’re better off finding out before the vehicle is delivered.
A strong call sheet is also something that you’ll never have a better opportunity to get than before the customer leaves with the car. Most dealers have some variation of this form, which can have many different names. This form is where you collect the information about the customer’s references, “just in case” you ever need to urgently get in touch with the customer.
We call ours a friends and family call sheet (e-mail me if you’d like a copy of the one we use), because that is exactly who we want listed…especially the grandparents! Grandparents can be an excellent skip tracing tool (so are ex-spouses). Another key is making sure the information is complete. Name, phone number, complete address and relationship are a must when completing this form. By taking a few minutes at delivery to do this form right, you can save several hours later on if you ever need to try to track down a customer who has skipped town. (On a side note, complete information on this form can also be used to send marketing letters to the references who may be looking to buy a car.)
Complete Applications. This seems like a no-brainer, but it cannot be overlooked. I’m sure most people will agree that complete information provided on the application increases the odds of approving the best customers. That can be prove tricky if you are basing your decision on a “five-liner”, or perhaps even worse, a full-length application that is only partially completed.
We are constantly preaching to the sales staff the importance of “painting a complete picture” for the loan officer. That principle also applies when the collections department reviews the application months down the road to look for any helpful bits of information they can glean, such as previous addresses, prior places of employment or banking data.
Payday Payments. OK, it’s time for a quick pop quiz.
Q: Which is the most effective schedule to set up payments--
a. Monthly b. Semi-Monthly c. Bi-Weekly d. Weekly
A: All right, it’s a trick question, because the answer is “All of the Above”. Actually, payday payments have worked the best in our experience. In other words, if the customer gets paid weekly, he is most likely to make timely payments when scheduled weekly. However, if a customer is paid semi-monthly, setting that customer up for weekly payments could lead to disaster.
Now, other factors might play into this decision, such as collections costs and the size of your staff, so it can be a bit of a balancing act. When structuring the deal, setting up their payments at the same intervals as their paychecks should yield the best results in your collection efforts from day one.
One statistic thrown around a lot is that 50 percent of marriages end in divorce. I can’t vouch for the accuracy of that statement, but I can tell you that if 50 percent of our contracts were going bad, we would be in serious trouble. Hopefully some of the tips in this series will help you beat those odds, and you and your customers will live “happily every after.” Vol 3, Issue 9
