Wouldn’t you like a better performing portfolio? Of course, there are so many benefits: decreased load on your collection staff, lower charge-offs, better cash flow. For instance, if you have a 500 loan portfolio, increasing your recency by 10% will increase your monthly cash flow by about $17,000. That's enough money to put 4 more cars in your inventory.
“It’s not that easy,” you say?
This is where you are wrong. Contrary to popular belief, there is no magic formula for collections, it simply requires LOTS of time, diligence and training. Often it will take months to see the effects of changes, but they will improve. Here are a the top three things you can do today to improve your collections tomorrow:
- Increase the level of contact with your customers. Buy-here pay-here customers require lots of attention to keep them on track. If your collection efforts are not starting the first day a customer is past due, they should. We actually start to develop the relationship with our customers as soon as the loan starts since it is always easier to start a relationship off on a good note! This will obviously increase the number of collection calls that need to be made each day. If your collectors are having difficulty getting to these calls, you need more collectors. It will pay off to spend this money, trust me!
- Change your approach. We all know it is not likely that you are the only creditor calling your BHPH customers, so in order to get your money, you have to be the best. Would you be more likely to pay the person who called you and berated you or the company who called and was firm, but respectful? Show your customers that you are actually trying to help them improve their credit and keep their vehicle. Take the time to explain to them the consequences of poor credit; sometimes they truly don't know.
- Set the expectations early. It is human nature to rise to whatever bar is set for us. Your creditors are no different in this respect. Explain at the beginning of the loan what the rules will be and what you expect of them and then be consistent and follow through. If you tell them that they are expected to pay on their due date or before and then do not contact them until they are 10 days late, you loose credibility.
Follow these simple guidelines and you will see improvements in the performance of your portfolio; maybe not today, but certainly in a few months. Patience and consistency is the key.