Pay More Attention to Cinderella

Collections is a piece of our industry that is the poor stepchild, but the reality is, collections happen to be the Cinderella of our business kingdoms. We pay a lot of attention to the ugly stepsister, that is, sales, but the bottom line is, you can sell your butt (I think I can say that) off, but if you can’t collect it, you just wasted a whole of time and a lot of money.

You’ve heard it before, we’re in the finance business, first last and always, we just happen to sell cars. In any Twenty Group meeting, how much time is spend on sales, personnel, cost of parts, promotions and how much time is spend on collections. In terms of the degree of importance, the time spent is all cattiwhompus – it ain’t what it should be.

Why? Because most of us who grew up in the car business, even the buy here pay-here car business, cannot get it out of our heads that for some reason, we’re in the car business. So, we think about cars, selling cars, parts for cars, promoting cars, getting customers to buy cars, going to the auction to get cars, the cost of cars, cars that will attract customers – bottom line, we have a real thing for the ugly stepsister.

Meanwhile, poor Cinderella, who has to do the work, collections, gets some mouth service, but not the love and attention she deserves. But, the glass slipper in this picture is this – you can work really hard for 10 ten years, build up a great portfolio, make tons of sales and suddenly, if you couldn’t sell another car, not one – you, your family, your pet dog, could continue to make a terrific living. Why, because if you had grown that portfolio, built an efficient and well-run collections operations, that portfolio will throw off a terrific cash return to you for a long, long time.

A $10 million portfolio leveraged at 40 percent means there is $6 million dollars of value, actually more with interest income, sitting there. That is your hard-earned money, every penny of it. But, for every time you let the recency drift away, let the delinquency drift up, let the 30-60 day past due grow, you might as well take your money, put it in a big pile on the ground, throw gas on it, then drop a burning match – poof!

No one should know more about your collections, your accounts, your daily rolls, than you. Without collections, your cashflow is nil, without collections, your bottom line vanished, without collections, well, you get the picture, without collections, you just ain’t in the business, period. The one thing that can’t stop, that has to work, all the time, is collections. Sales can dip, collections can’t, collections has to be the steady oar in the water, the princess with the glass slipper that makes the kingdom run the way it should – and keeps you, the king, happy.

This is not to say that the attention you give overhead, the attention you give personnel, the attention you give true unit costs isn’t important, because it is important. But, it is to say that if you don’t take a step back and really look at your collections operations, how it functions, how it could function better, what makes it work, you will have missed both the boat and the ocean it floats in.

One of the things we know for a solid fact about collections is that it isn’t an after the sale process. The collection process, to be truly effective, has to start at the time of sale. Sales staff have to, let me stress this, have to set the right expectations at the time of sale. They need to take the customer back to the collections window, introduce them to the cashier, set the expectation from day one, you need to pay for this, you need to know we’re going to work with you, call you, remind you, about paying for this – creating a positive reinforcement about collections.

There is a lot of buzz, good buzz, going on now about “electronic” fund transfer when it comes to collections – this means ACH, Debit Card, Credit Card payment processing. Frankly, it is growing pretty rapidly and the reason it is starts with the sales process – an expectation is being laid down at the time of sale about collections and offering up ways for the customer to pay. This particular methods are showing real signs of improving collections, improving recency and delinquency.

There are lots of positives about collections, lots of opportunities about electronic fund transfer mechanisms, but those positives, those opportunities only exist if you get to the point you understand who the princess really is in your business. Trust me, it isn’t the ugly stepsister. So, pick up the glass slipper, go find Cinderella, collections, and make the kingdom a better place.