Successful BHPH dealers will tell you that effective collection results are based on a well thought out strategy, not a hit and miss approach. To achieve effective collection results the strategy requires an objective, a game plan, and measurable results. Let’s examine each of these components individually.
Objective: For collection results to be effective, it must start with a clearly defined objective. It’s important to determine what success looks like, and why achieving this objective is important? The objective could be different for each dealer. For some dealers the objective might be to improve cash flow by improving collection results. More payments collected translates into better cash flow. For other dealers the objective might be to simply reduce the total number of accounts that are delinquent which produces a reduction in your delinquency percentage. Some dealers may want to focus on Recency, and create an objective for getting payments from customers more frequently. Whatever the objective is, it must be clearly defined and communicated to the entire staff.
Game Plan: For collection results to be effective, it will require a game plan that takes effort and consistency from your collection staff. This is where the psychology behind effective collections results starts! In general, BHPH customers are not good money managers, they live paycheck to paycheck, and have a poor credit score. In addition, BHPH customers generally do not like discipline, structure, or being accountable for the decisions they make. Having said that, many BHPH customers are also good people that have just made bad decisions in their life. So how do we get this type of customer to make regular payments on the vehicle we have financed for them? The key is permitting the customer be completely in control of the outcome from the choices they make. With this collection strategy the customer determines the outcome of a situation. The psychology behind this strategy is that the customer must simply keep the promises they make or there will be consequences.
This collection strategy takes the responsibility off the collection team, and puts the responsibility on the customer. For this collection strategy to be effective it requires buy-in from the management and collection team, as well as training, structure, and consistency. There are two types of training required. The first type of training is training your staff on the psychology behind this collection strategy. How does it work? Why is it successful? How do we implement this strategy? I can help you and your staff with that part. The second type of training is training your customers to accountable for the choices they make with their car payment. For example, if a customer promises to make a payment on a specific day and they don’t keep their promise, they must learn there are consequences for the choice they made. Or, if a customer chooses not to inform you of a change in jobs, or they changes phone numbers without updating you, or the choose not to respond to calls and messages from your collection staff, the customer must learn there are consequences for those choices. In this collection strategy the role of the collector and their interaction with the customer changes from confrontational to holding the customer accountable for the choices they make. In other words, keep your promise and there won’t be any unpleasant consequences.
For this collection strategy to produce effective collection results, it must also have a high level of structure and consistency. I am a big believer in structure when it comes to collection activity. I also believe this structure must be consistent between all collection staff, and carried out consistently with every customer. The structure involved requires documentation and communication. I recommend the use of specific operational forms to document any and all payment arrangements. This form must include details on specific payment amounts and payment dates the customer and the collector mutually agree to. In addition, the form should clearly communicate the consequences that will occur if the customer breaks their promise and does not honor the payment arrangement that has been agreed to. In addition to forms that document the payment arrangements, I recommend that the customer must provide verification of hardship and the reason they cannot make a payment in full and on time. This is another training moment for collectors and customers. By requiring a customer to provide verification of hardship, the message to customers is; “we’ll work with you to get your account back to current, provided the reason you can’t make a full payment is legitimate, and you can verify the hardship”. Once again, the customer is completely in control of the outcome. If the story is legitimate and they have encountered a hardship, you will help them. If the story is a lie, they will not have the verification required to qualify for the payment arrangement. In that situation, the customer has a new choice; make the car payment and short pay another bill or your car payment will be in default.
Measurable Result: For a collection strategy to be effective, it must also have measurable results. Step one of the collection strategy was to identify the objective of your collection results. If that step has been done correctly you will already have an understanding of what collection results need to be tracked. Most BHPH dealer management software have built in reports that track payment and collection activity. The difference between software programs may be how many types of reports are available to monitor your payment and collection activity. For example, if the objective of your collection strategy was to increase cash flow, you will want to monitor delinquency reports, recency reports and bank deposit reports. The delinquency report will monitor changes in the number of accounts and date ranges of delinquent accounts. An improvement in delinquency will result in more payments being collected. The recency report will monitor changes in the frequency of payments being made. An improvement in recency will result in payments being collected more frequently. The bank deposit report will monitor changes in money being deposited in the bank account and should be monitored daily, weekly and monthly. If your collection strategy is sound, you will see an improvement in your cash flow. Objective accomplished. If there is not an improvement in your cash flow, you need to walk back the strategy and determine where the results have underperformed, and make the necessary corrections.
In summary, the psychology behind effective collection results, starts with the end result in mind. In order to improve collection results you will need to change behavior. By permitting the customer to be completely in control of the outcome for the choices they make, the role of the collector transforms from confrontational to holding the customer accountable. By implementing structure, documentation and effective communication, the collection efforts produce improved performance and measurable results. For more details on collections strategies contact me with your questions.
By: Mark Dubois
NIADA 20 Group Moderator and Consultant