Collections best practices are designed to increase the number of payments received on every contract — increasing cash flow and potentially increasing sales from referrals. A shut-off box on a car is no substitute for good collections practices. You are also discouraged from making field calls, as it can violate CFPB rules — not to mention be potentially dangerous. The key is to make your payment a top priority in the mind of the customer, specifically because customers trust and perceive that your dealership is willing to work with them to find a solution.
Nothing can really motivate a customer to pay for a car except a strong relationship. This approach is harder than billing and repossession. It takes a different mindset among your collections and service staff, but it can be efficient if you establish a positive rapport and understanding from the beginning of the transaction.
Your process and paperwork should be consistent and clean every time, no matter who is closing the deal. Emphasize that you expect payments on or before the agreed due dates. If you can, set up an electronic funds transfer (EFT) with customers around their payroll time. You can’t require it, but you can make it attractive by offering a discount. Outline the process of what will happen if they can’t pay on time. If the car malfunctions and if they need to re-figure the payment terms due to a change in circumstances, talk through those situations too.
Establish a clear process for communicating, which in some cases may be opt-in text messaging. You can now use SMS for automatic payment reminders, service reminders and late payment notices. In any and every case, keep the lines of communication open.
Follow up with a check-in call. Congratulate customers on their purchase and ask them if they have any questions. Make it clear that your team is there to help, so that their first contact with you is positive rather than a delinquency call. Provide clear contact information for customers to reach their “account rep.”
Results show that a strong closing process with full disclosure followed by a welcome check-in call reduces the need to chase down payments and also increases the number of payments made. This won’t happen on every transaction. There will still be cases of repossession, but dealers can reduce the chances. A full inventory of cars is not what you want.
Deal with service issues quickly.
One of the biggest reasons that customers stop making payments is that the car has a problem. Make it clear during the closing process that any issues with the car will be handled, whether through a limited warranty or service call. Depending on the issue and timing, work out how the customer will participate in paying for the service. Calculate the cost of the repair against the benefit of more monthly payments, and often the benefit is on the side of more monthly payments and a happy customer willing to refer your dealership to friends and family.
Keep in mind that your inventory is not your biggest asset; your portfolio is the golden egg. Accounts need to be worked every day by collections; don’t just wait for the phone to ring. A 30-day past due notice equals four to six missed payments. If you have 100 accounts, a good rule of thumb is to have four collections staff and one part-timer in the wings to pitch in when necessary.
Continue Reading: Budget and Expense Oversight
If you are looking for a strong CPA partner to assess your software, budget, KPIs or processes, talk to the business services group at Cornwell Jackson. We work with dealers on a monthly basis to keep their accounting and reporting organized for proper compliance, better cash flow and enhanced profitability. Plus, we understand the regulatory issues and competition that impact the bottom line of this industry.
Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.
