It’s All About Collecting Payments

Discussing collection strategies with our BHPH members on Agora something I really enjoy, because there are unchanging realities that affect all of us:

1. Customers will drive 25,000 miles or more a year, because it is the primary, functioning car in the household (or neighborhood).
2. Oil changes and maintenance never cross the customers’ minds.
3. Loan default is a 50/50 proposition: Mechanical breakdown is half of the failures, and life events (job loss, medical, financial, etc.) account for the other half.
4. The vehicle is critical to their ability to make income.
5. If they get a full month behind, they don’t have the capacity to pay current.
6. A customer who is $600 past due and not responsive, can surprisingly come up with $2,000 to redeem a repo.

I could go on and on. The simple truth is the customer struggles with the rigors and discipline to pay consistently and on-time unless your collection process provides that discipline.

• Twenty-five thousand miles a year and poor maintenance: Your note car inventory has to be Darwinian (survival of the fittest), resilient to excessive mileage, and lack of maintenance.
  • A weak vehicle or a recycled repo drives poor performance and losses.
  • Have you considered giving them a free oil change every four months? It is cheaper than repo fees, and you get to see them, as well as build goodwill.
• Default 50/50: Mechanical (see above) is difficult to overcome, but life events can be worked through.
  • Ensure the customer understands the value of on-time payments, which can translate to the flexibility to do a one-time deferment annually. Pay on-time, and we can work together when you need assistance.
• Can’t work without your vehicle: Your car payment is the one payment that must be made, so you can work, earn money, and pay your bills.
  • During the closing, before delivering the vehicle, you need to have the “parental discussion,” laying out precisely what is expected from them:
    • Payments are due on or before the due date
    • Call me if you have an issue BEFORE the payment is due
    • Communicate openly, and I can work with you. If you are unresponsive and I have to find you, nothing good will come of that.
  • Customers can find $2,000: They are very reactive and resourceful when things get out of control.
    • Determined, consistent communication before and after they enter collections is critical to ensuring that your customers don’t get too far behind and fail.

Your highest profits come from customers making payments, not from repossessions. Identifying the right vehicles, establishing enforcing payment discipline, and working through tough times is where the profit awaits you.