The Buy Here Pay Here & Lease Here Pay Here Business and BHPH & LHPH Dealership Management Software

I ran across an interesting article last week in Business Insider. It was about a survey released in December of last year concerning financial services done by the Federal Deposit Insurance Corporation (FDIC). The survey found that roughly 1 in every 12 US households, or some 17 million adult Americans, are “unbanked”. That means they lack a current checking or savings account.

Collections are the most exciting activity at a Dealer Controlled Financing dealership. If your employees have properly worked the other processes at your dealership, then collections can be easy. The dealership can maintain a larger portfolio without increasing personnel expense.

Collections during the upcoming holiday season always become just a little tougher. We know our Buy Here – Pay Here customers live paycheck to paycheck and, during this time of the year, there are more demands on those paychecks than ever. The cost of holiday meals at Thanksgiving and Christmas or Hanukkah plus Christmas presents and even preparations for New Year require extra money when our customers have very little extra money to spend. Too often, BHPH customer use money budgeted for their car payment to cover these expenses.

Charging late fees is a practice some Buy Here – Pay Here dealers choose to do but an approximately equal number consider to be a bad practice. Those who charge fees when their customers pay late typically look at it as another source of revenue. Those who believe that it is a poor practice will, more often than not, site one or more of the following reasons.

A month or so ago, I wrote a blog about accepting credit and debit cards for payments at BHPH dealerships. The response to that blog has been overwhelming. I am grateful for the comments, calls and emails I have received. The questions I have been asked have been very good ones and, since I’m sure there are other readers who share those questions, I have decided to respond to them here. The questions and/or comments fell into two separate categories; those who did not currently accept cards for payment with some of their reasons why and those who do accept credit or debit cards but are unhappy with their current situation. Here are the top 4 concerns in each area.

I got a call from one of our clients who we provide consulting for. “Al”, she said, “I’ve got a problem”. She continued, “I just had a payment rejected for a customer we have set up on an automatic payment plan. I tried to call his cell phone and now the number is no good. We did a field call to the residence address we have on file and the people living there said he hasn’t lived there for a few months.” “When did you last speak with the customer”, I asked. “About 6 months ago when he bought the car and we set him up for automatic payments”, came the reply.

I wrote a blog post about a week ago on the growing use of alternative payment methods in Buy Here - Pay Here. My good friend Ken Shilson, president and founder of the National Alliance of Buy Here Pay Here Dealers, just wrote an article on the subject, as well. He has granted me permission to republish it here.

Managing a Buy Here – Pay Here dealership can be like walking a tightrope. A manager needs to balance creating a friendly atmosphere against the need to maintain a business relationship. Potential customers should feel welcome when they come in to purchase a new vehicle and current customers should feel like the dealership cares out about them and what is going on in their lives as they make their payments. But customers must also understand the necessity of being honest and making their payments when they are due. It is easy for this balance to get out of whack one way or the other. Either way can result in serious consequences to the health of the dealership.

For many years the prevailing philosophy in the Buy Here – Pay Here industry was to sell only to customers near your dealership who could come in every time they got paid and pay you in cash.

That philosophy was based on a couple of facts and/or beliefs:

1. If a customer lived more than a 30 minute drive from the dealership, they were more likely to mail in their payments than drive to the dealership. Mail-in payments were typically in the form of a check. Checks bounce, creating additional collection problems. Most dealers preferred not to accept checks for that reason, even at the dealership.

I just got off the telephone with a dealer who was complaining he hadn’t been able to buy a single unit at the auction today. He claimed every car he wanted went for over $3500 and, with a cash in deal policy of $2500, average reconditioning expenses of just about $700 and average customer down of just under $800, he just couldn’t make $3500 cost vehicles fit his business model. Although the numbers may have been a little different in each case, he is certainly not the first dealer I have had that discussion with.