| We've often heard the phrases "If you can't track it, | | | | projected payments actually collected, calculated on a |
| you can't learn from it" and "Knowledge is power." | | | | weekly basis (not monthly). Large pay-offs, insurance |
| These couldn't be more true than they are today in the | | | | payments and "roll-over" pay-offs were deducted |
| buy here-pay here industry. It's fairly easy to open a | | | | from the car payments collected to ensure |
| buy here-pay here dealership (in most states); get a lot, | | | | consistency. |
| get a license and buy some cars. The trick is keeping it | | | | Delinquency rates, by themselves, aren't the best |
| open and the key to that is managing the cash flow. | | | | indicators of how efficiently the staff is collecting the |
| We often see dealers open lots, sell lots of vehicles | | | | dealer's money. A high delinquency rate doesn't |
| and then, after months of everything seemingly going | | | | always indicate poor collections. The dealership may |
| well, can't understand why they're exceeding their | | | | be experiencing a high Recency rate not reflected in |
| cash flow projections. They tell us "My delinquency isn't | | | | the higher delinquency rate. Likewise, a low delinquency |
| bad and I'm selling cars, so why am I running low on | | | | rate does not always indicate good collections. |
| cash?" There may be many reasons for cash flow | | | | Delinquency rates can be manipulated by managers |
| shortages such as; selling too many cars too fast; or | | | | that have little or no supervision by means of contract |
| not adhering to a cash-in-deal policy; or reconditioning | | | | rewrites (used to age delinquent payments) or by |
| cost being higher than expected; or operating | | | | charging off accounts too quickly (before truly working |
| expenses skyrocketing; or any combination thereof. | | | | the customer). The use of the Weekly Collection Rate |
| Most of the issues can be easily identified and | | | | will help identify these issues. The rate can vary from |
| monitored with the use of month-end reports. | | | | week to week, but an average of 95% or better |
| However, another issue that affects cash flow is a | | | | indicates the staff is managing the collections of the |
| little more difficult to identify from just reviewing a | | | | accounts receivable well. If charge offs are high, you |
| month-end report; how well the staff manages the | | | | would see a drop in the collection rate. If accounts are |
| collection of the accounts receivable. For that, you | | | | being rewritten to "age" delinquent payments, you |
| need to dig a little deeper. | | | | would see a drop in the collection rate. Conversely, if |
| Webster defines data as "factual information used as | | | | the staff is being diligent and working the customers |
| a basis for reasoning, discussion, or calculation." Data | | | | properly, you should see an increase in the collection |
| mining has been defined as "the nontrivial extraction of | | | | rate. If they are persistent with the past due |
| implicit, previously unknown, and potentially useful | | | | customers, you should see an increase in the collection |
| information from data"(1) involving sorting through large | | | | rate. |
| amounts of data and picking out relevant information. | | | | If you can't inspect it, you can't track it. If you can't |
| Of the many key indicators that are prevalent in | | | | track it, there is no accountability. No accountability also |
| today's business (charge-off rates, loss rates, default | | | | means no motivation. No motivation means no reasons |
| rates, Recency rates, delinquency rates, etc.) one | | | | to change. Don't expect what you can't inspect. Your |
| stands out above the rest. With over 900 weeks of | | | | data is like gold. Mine it often. |
| data reviewed, we have determined that the single | | | | References: |
| best indicator of how well collections are being | | | | 1. W. Frawley and G. Piatetsky-Shapiro and C. |
| managed at a buy here-pay here lot is the Weekly | | | | Matheus, Knowledge Discovery in Databases: An |
| Collection Rate. This figure is the percentage of the | | | | Overview. AI Magazine, Fall 1992, pp. 213-228. |