Pre-Technology Era of Collections
BHPH dealers and subprime auto finance companies who have been around for awhile are all too familiar with the typical process of trying to collect weekly, bi weekly or monthly payments from their subprime customers.
When a payment due date approaches, collectors analyze the accounts they are responsible for to see who has paid and who has not, and then begin making phone calls. Of course, these phone calls and attempts to communicate are often met with declined calls, disconnected numbers or other methods to avoid the collection agent. In worse cases, consumers may have left town or moved without notifying the creditor.
Significant resources are often required on the part of the collection agent to attempt to track down and retrieve payment from consumers who were late.
Due to the significant amount of time and effort that each collector spent trying to track down late payments, the number of accounts they could manage at once was limited. Historically, the average number of accounts per collection agent was about 300. Of course, that number varies widely depending upon business models, lending criteria, collection structure, etc. With the average number of 300 account per collector, naturally as the portfolio grew, so did the need for additional collection agent resources.
In addition to the overhead cost of the employees, cash flow is impacted. It doesn’t take an advanced degree to understand that late payments hinder cash flow for the dealership or finance company. While many are able to predict the percentage of payments that may come in late or not at all, cash flow for the business suffers.
While the cash flow, overhead resources and effort on the staff are all enormous challenges for dealers and lenders in the subprime market, perhaps the biggest underlying challenge is communication. In this traditional scenario, the consumer is typically on the receiving end of communication attempts from the dealer or lender. The general response on the part of the consumer is to avoid that communication attempt altogether. The communication is usually one-sided, met with resistance, and widely ineffective.
Impact of GPS Technology on Collections
GPS has been around in the used car industry for decades. But, how exactly does the technology help with collections?
It works like this:
Without the use of technology, and specifically, collection tools, a collection agent who has 300 accounts, may on average have 90 to 100 of those accounts delinquent at a given time. Depending on the situation, the collector may or may not have a good idea of which 90 consumers out of the 300 won’t make their payment. So, the collector spends his or her time calling most, or all of accounts to get payments in each payment cycle.
With the use of GPS technology and collection tools, the collector can quickly identify which of their 300 accounts may be a problem. By looking at which accounts have not made a payment and have not called in, the collector now knows who to contact. The collector can focus on the small percentage of consumers who haven’t paid or made contact, instead of the entire portfolio, or trying to guess which accounts to call. By needing to focus only on a small subsection of an account, collection agents can now handle a larger number of accounts overall, helping reduce overhead and the company grows.
Ready to see how technology can impact your collections?