The Most Important Aspect of BHPH – Collections

You (the dealer) bought the right car at the right price. The recon is done and it’s below your average. You found a customer with a decent down that you felt comfortable with. They agree to the payments and boom, car deal. You repeat this 20, 30 times a month, 12 times a year and what have you done? In our case, we have put about $4.5 million on the street. Yes, the P&L looks pretty good. Does it matter?

It only matters if you collect the money.

In BHPH, every stage of the sales process plays a major role in collections. In order for your collection efforts to be effective, your sales have to be made with the portfolio in mind. Our sales staff is trained with collections in mind. All of the documents we use in underwriting are designed to assist the collector after the sale.

When I set up our current business model, I wanted to counter all the reasons I had heard from collectors about why we would get cars back. I also wanted to attract a better customer. Here at Best Ride, we offer a lower interest rate than our competition and we report to a credit bureau. This helps get the attention of some retail customers.

In 1998, before I started Best Ride, my previous operation had begun to sell extended service plans (ESPs) to the customers. After a few months the collectors of that operation started coming to me bragging about the difference in the portfolio between “warrantied” cars and the ones that didn’t have ESPs. The ESP has also been a great selling tool for those same higher beacon customers we like.

In our current operation, we have 99-percent penetration on ESPs. We use an outside administrator (AUL Corp.) and it has made a huge difference in our business. One requirement of our desired inventory is qualification for the ESP. Not only do we have very few involuntary repossessions, but also we have been able to tighten our underwriting while maintaining our sales projections. We pull in 650-beacon customers advertising the ESP (24/24 comprehensive coverage), credit reporting and our inventory.

Another factor in collections is the customer’s attitude. When our manager closes a deal, the customer is schooled on the importance of making payments on time and communicating problems to us during the contract term. We use a closing letter with bullet points that are reviewed with and initialed by the customer. 

We have 700 open loans and one full-time collector. He is not alone, though. Everyone in the operation understands and assists in collections. Our collector’s success is a direct result of underwriting and customers’ understanding of our expectations. You, as a dealer, have to understand that customers are people and they have problems like we all do. Your customers will lie to you. We try not to allow customers to get away with the typical stories. When the customer offers an excuse for not paying, our collector knows to sympathize with them while requiring proof. This helps curtail the attempts to give an excuse, so we can discuss the real reason and work out a plan. We have always been flexible in our collections. If customers come in and explain their problems, with the right attitude, we will help them for a long time. Being too rigid only helps create extra repossessions and bankruptcies. 

If you decide to get into BHPH, LHPH or any other form of dealer-controlled financing, set up a sales process that has collections in mind. Make sure your underwriting is diligent (verify, verify, verify), then make sure everyone in your operation understands the importance of the portfolio. After all, you will be in the financing business.