Don’t Forget to Focus on Collections
Most of us are guilty of it. You know what I am talking about.
Talking on our cell phones while driving. What are we thinking? As I drive to work, run errands, and drive on various business and personal trips, I have started to notice a very disturbing trend - the large number of people who are driving and talking on their cell phones.
These people are very easily spotted, from every angle. These people are the ones who drive in the fast lane, slowly, oblivious to everyone around them. They cause traffic jams and dangerous situations as people attempt to pass them.
I’ve even almost caused an accident because I was so distracted while driving and talking on my cell phone. As a result of this, I have decided to not talk on my cell phone while driving unless I am on an open interstate with very little traffic in good weather.
You are probably wondering why I am talking about cell phones and what they have to do with the car business. We believe that talking on the phone while driving saves time, as we can accomplish more in the day if we are multi-tasking. But what it does is keep you from being focused on driving or talking.
If you are managing your business the same way, trying to accomplish two or more things at the same time, more than likely none of them will be accomplished to the best of your ability. This applies especially to your BHPH collections. It is imperative you and your personnel are completely focused on collections and generating cash flow, not selling cars. Without 100-percent focus on the task of collections, repossessions and delinquency rates will increase dramatically and profitability will decrease quickly.
Review your procedures and policies on collections. Have your personnel been trained to maximize the collections each day? Have you really studied what days of the month are the best collection days? Why is there so much of a difference in collections among your collectors? Why does your delinquency peak on certain days of the month? What vehicles cause the highest rates of repossessions? What does your static pool look like?
If you and your personnel haven’t attended a refresher course on collections, it is time you do so. Even the best of collectors need some tweaking from time to time. You must keep up with all the legal issues out there waiting to trip you up, along with trying to keep from getting burned out on constantly “beating” on people to come in and make their payments.
I constantly hear from BHPH dealers how many vehicles they sold last month or how hard it is to buy the right vehicles. I normally do not hear how much they are collecting per day or month in cash flow or what their repossession rates are. They are more worried about buying vehicles than what the collectors are doing. I am not saying you don’t know what is going on in your BHPH business, as you probably do. But similar to talking while driving, you are trying to manage both selling and collecting at the same time. One is going to lose ground to the other.
To maximize your effectiveness, review all the reports your BHPH software system provides. If it doesn’t provide an adequate static pool report, then contract with one of the providers who offers the service and furnish them your data monthly to generate the reports, or complete the analysis yourself using spreadsheets. Remember, your static pool is only as good as the timing in which the notes are written off. If you do not have a consistent policy regarding write-offs, when they happen and how you input the exact reason for a repo, your static pool will have wide variations and won’t make sense when you look back later.
Remember, static pool history and trends can indicate how well your underwriting policies are working and where you are going with profitability in the future. It can alert you and your collectors to potential problems with your portfolio. If you are noticing more or different problems in collection rates, you need to review all of the reports available to find the cause of the problem and the total potential effect. Then, figure out a plan to eliminate or reduce the problem to a manageable and acceptable level.
If you are not comparing your operations to industry averages or you don’t belong to a 20 group, consider doing so. Most of my dealers who do so produce higher profits and are normally well-run. You can’t think of everything, know everything going on in the business and know how to solve your problems. Other dealers have been there and done that. Many times you don’t have to reinvent the wheel in everything you do. It is OK to use as many best business practices as you can to maximize your efficiency and profits.
Use all the tools available to you. There are many out there. Then review which ones will work the best for you. Become excellent at managing your collections and ongoing portfolio. You should make a lot of money doing so.
Vol. 7, Issue 10