Collecting BHPH Payments – The Times They Are A Changin’
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:
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.
Debit cards were unheard of at the time this philosophy first came into being and the typical BHPH customer did not have credit cards. Even ACH processing was years in the future when this philosophy first evolved.
Most customers were receiving paper paychecks. Whether they had a bank account or not, most were having to cash their paychecks somewhere so they could pay in cash. Many times, they had to pay to have their checks cashed.
Over time, more payment options have become available for BHPH customers. 3 out of 4 working Americans have a bank account and, unless their credit is good enough to qualify for an account but too poor to get a debit card, most now have access to a debit card. Those who are unbanked or underbanked can still purchase preloaded debit cards. There are several credit card companies that will issue cards to higher risk consumers, although at a high rate of interest. A significant portion of those who do have bank accounts now get their payroll direct deposited to their bank account.
With this change in the methods our customers now have at their disposal to make their car payments, the savvy Buy Here Pay Here operator needs to re-examine their payment philosophy to make sure they are taking advantage of every opportunity to manage their account portfolio. The right payment philosophy can reduce delinquency, improve cash flow and increase customer satisfaction by getting more customers to pay on time.
Let’s take a look at the various means by which your customers might be looking to pay you in today’s marketplace:
Credit Cards – According to a Federal Reserve Board study in 2010, 78% of Americans now own a credit card. Although the percentage of BHPH customers is, no doubt, lower than the general population, there is still a significant number of the 176.8 million credit cards in circulation that are in your customers hands.
Debit Cards – The number of customers with debit cards is even higher. In the same Federal Reserve study, they found 80% of consumers had a debit card. As of the end of 2011, there were 521 million Visa and MasterCard debit cards in circulation.
This massive surge in the use of credit and debit cards has had a dramatic effect on the BHPH dealers. Those dealers who still choose not to accept payments by either credit card or debit card need to ask themselves how many of their delinquency problems are because they have made it difficult for their customers to pay them.
Credit and debit cards have some significant advantages over any other forms of payment. Let’s take a look at a few:
Recurring payments – If your dealership management software has the capability to store your customer’s card information, they can make a simple phone call to you whenever they want to make a payment instead of having to take the time to get in their car and drive to your lot.
Automated payments – Again, if your software has the ability, you can set up an automated payment plan for your customers. They sign an agreement with you that allows you to run their card each time a payment is due. Besides the convenience of processing payments quickly and easily, automated payments also lets you know quickly when a customer does not have the funds to make a payment, allowing you to begin collection efforts much sooner. 53% of all US consumers use a recurring payment plan to pay at least some of their bills. Automated payments have one more advantage. Typically, dealers run those as soon as a customer gets paid. That means you get your payment first, before the customer can go spend their money somewhere else.
Online payments – More and more consumers are looking to the Internet as a convenient way to make bill payments. Last year, 38% of US consumers paid at least some of their bills online. Numerous studies have shown that consumers have indicated that choice and convenience are major factors of choosing when bills get paid.
It just seems to make logical sense – the easier and more convenient you make it for your customers to pay; the more likely it is they will make those payments on time. Automated and online payments allow you to collect payments from customers who could not come to your dealership to pay because of distance, work hours, etc.
If you do not accept card payments today, think of all those accounts that you have trouble getting payments from; not because they don’t want to pay you, but because you have made it difficult for them to pay. Now think about how many of those problems would be solved if those customers could pay by card.
Another advantage of taking card payments is that it reduces your risk exposure at the dealership. The typical BHPH dealership might have thousands of dollars in cash on hand on a Friday afternoon. Converting some of this cash to credit or debit card payments reduces the amount of cash that must be handled on a daily basis.
Times have changed. The best BHPH dealers adapt to those changes. Is it time for you to reconsider your payment policies?