26 Sep

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.

You can sit back and accept this as just part of being in the Dealer Controlled Financing business or you can do something about it. Increasing the aggressiveness of your collection efforts can have a limited positive effect but the cost may be damaging your relationship with the customer and adversely affecting collections in the long term. A more positive approach may produce better results and actually improve your relationship with your customers.

We want our customer to want to pay on time. We want them to choose to pay their car payment before they pay some of their other bills. The secret is finding a way to instill this desire to pay in your customers and designing ways that make it easier for them. Here are a couple of ideas that have worked for dealers we consult with.

1. Pay extra now

As of October 1st, there are 13 weeks left in the year. If a customer has $60 per week payments now and pays $5 extra through the end of the year, they will be able to skip 1 payment. If they pay $10 extra, they can skip the last two payments of the year. It is much easier to collect an extra $5 or $10 now than it will be to collect $60 or $120 at the end of the year.

2.  Holiday Promotions

Many dealers have successfully designed promotions that entice their customers to keep making on time payments throughout the holiday season. These typically follow a formula that looks something like this;

  • Choose 1 or 2 major prizes. These should be of high enough value that your customers will want to stay eligible to win.
  • Add several smaller prizes for a variety of age levels. This increases a customer’s belief that they might win and should, therefore, participate.
  • Run the promotion for an extended period of time. I’ve seen this kind of promotion done for 12, 10 or 8 weeks but seldom any shorter.
  • When the promotion begins, every customer whose account is current is eligible to win. If possible, announce it enough ahead of time to give delinquent customers a couple of weeks to get current.
  • A customer remains eligible for the prize drawings as long as they make every payment in full and on time when it comes due. Once they are late for any reason, they become ineligible for the drawing.
  • Hold your drawing the Saturday before Christmas so your customers can take their winnings home and put them under the tree if they want to.

This type of promotion rewards those customers who pay as agreed through a difficult time for them to do so. It can help control the spike in delinquency that many dealers experience at this time of year.

3. Boost Your Referral Program

Since your customers need extra money at this time of the year, help them find a way to earn it. The typical BHPH dealer pays a referral fee of $50 per referral that ends up buying. You can try to boost both payment collection and new business by trying to get more referrals in this traditionally slow time of the year. Some dealers simply boost the amount they pay per referral while others institute a more complex referral promotion. One I have seen used with success is an increasing scale for referrals. During the promotion, the first referral may be worth $75, the second $100, the third $150 and so on. I even know one dealer that will pay off a customer’s loan of they send in 5 people who buy.

Some states do not allow raffles or ‘bird dog’ payments. Make sure you verify that what you want to do is legal in your state.

You can alter and customize these ideas as you see fit. Maybe you run a different type of program to help with your holiday collections. If so, we’d love to hear about it. Please add it to the comments section below. The important thing is that you do something. Don’t settle for below normal collections for ¼ of the year.