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BHPH HIGHLIGHT

What Delinquency Does NOT Mean in

Buy Here-Pay Here

BY JIM RHOADS, BHPH CONSULTING

If I am an analyst at Bank of America, high softer – the “bend-without-breaking” phi- Most of us recognize right away that not
or increasing delinquency suggests some- losophy. all of those dollars were deposited on time.
thing for sure. But, if I am measuring delin- Some were on time while others came late
quency in Buy Here-Pay Here (BHPH) or Both approaches can produce near-term and a few may have even arrived early. By
subprime auto portfolios, my expectation payments. But, the iron-fisters are much focusing on how well we did at converting
would and should be much different! more likely to have a pile of repos in the expected money into actual deposits, we
back lot! Those who manage with that iron create an environment that promotes flex-
Let me first say that delinquency rates in fist get some of those payments by 6pm — ibility and cooperation.
the BHPH business matter. They always but at what cost?
will. Too often, however, I encounter deal- Morale in the collections department is
ers that place too much emphasis on delin- You may already be surmising that I urge much better! We have a chance to keep
quency. That can become a problem in a my clients to adopt the latter approach good collectors on board for the long haul!
number of ways. Delinquency does not tell and to be prepared to bend. I want my cli- The customers definitely appreciate the
the entire story when it comes to managing ents and their customers to be successful. flexibility and managers just have to deal
poor credit accounts. It doesn’t even tell the I encourage my clients to focus on putting with those who begin to take advantage.
most important part of the story. As a re- money in the bank, even if it doesn’t all The dealer is better able to predict cash flow
sult, too many dealers and managers spend come on the day it was due. based on these results – so important in
their day frustrated and pushing a rock up- BHPH! Now, if we could just get the banks
hill. To do so, it is important to bring a spirit of to revise the restrictions on qualified collat-
cooperation to the collections department eral, we could be more cooperative and save
Let me back up a bit. Let’s first accept who every day. The price of flexibility often more accounts!
this BHPH customer is. This is a custom- translates into higher delinquency. Is high-
er who has not shown financial respon- er delinquency a problem? It certainly can Bending without breaking is the better,
sibility in the past. They do not manage be if we have a line of credit that excludes more sustainable approach. Dealers who
money well. Plus, they are among the car accounts from the borrowing base based aren’t there would do well to think about
buyers with the lowest income. As BHPH on delinquency. And it definitely frustrates efficiency, recency and dollars in the bank,
dealers, we have elected to accept that risk collectors who have to meet a certain delin- and look less often at 1-day delinquency.
and the best among us work to create a quency to earn a bonus. Being delinquent Until then, it is useful to remember that
program and process that will allow this is no fun for the customer either, especially short-term delinquency is our reality in
customer to be successful with their auto when being hounded by frustrated and irri- the BHPH business. We have to constantly
financing. The typical BHPH customer will tated collectors! remind ourselves what delinquency does
experience setbacks during the life of their and does NOT tell us about the job that our
BHPH loan. The longer the note, the more I’ll say it again “delinquency will always collectors are doing. A shift in our thinking
true that statement becomes. The question matter in collections,” even in my approach can make everyone happier – the collectors,
is - how we will respond as creditors when to managing BHPH accounts. I simply sug- the customers, and the dealers! n
those blips appear on the radar? gest that dealers in this business should __________________________________
learn to shift the daily emphasis (and their Jim Rhoads is the founder and CEO of
In my experience, there are two distinct collectors’ pay plans) away from delinquen- BHPH Consulting of Salt Lake City, UT.
ways to manage BHPH collections – two cy to more toward recency and collection He has on-site experience in BHPH deal-
approaches that are diametrically opposed efficiency. That label – collection efficien- erships and/or subprime auto finance com-
to one another. There is no real middle cy – is mine. I have been measuring it for panies in 26 states and counting. BHPH
ground. clients for more than 15 years. In short, it Consulting offers training and consulting
has to do with measuring the dollars that packages for startup clients as well as a
I’ll call the first the “iron fist” approach. we put in the bank compared to the dollars myriad of services for established BHPH
This is the “pay-by-6pm-today-or-else” ap- that were contractually expected. operators. Visit www.bhphconsulting.com
proach. Dealers who adopt this approach or email jrhoads@bhphconsulting.com for
definitely measure their success with a de- In other words, we know what the portfolio more information.
linquency report. The alternate approach is was projected to produce. How did we do?
44 | GIADA Independent Auto Dealer FEBRUARY 2017