Deal Pack Blog
What is Loan Servicing?
Cash flow is the main artery of a Buy Here Pay Here dealer. Managing how cash is generated and how it’s spent is critical to the success of your business. Although your dealership reflects a positive net profit on the financial statement, you may find yourself funding the business out of your own pocket as a result of poor cash flow.
Collecting payments when due is crucial to cash flow, therefore it’s imperative to employ a diligent collections staff. An alternative to the in-house collection routine is Loan Servicing, or outsourcing collections to a professional collections business. Typically in this scenario the dealer provides the servicing agent with the customer’s loan specifics. The dealer notifies the customer to make his loan payments to the servicing agent instead of the dealership. Payments are collected and forwarded to the dealer minus a servicing fee, which is usually a percentage of the dollar amount collected. The servicing agent retains any fees such as late charges or NSF fees as additional revenue. A loan can be serviced from “cradle to grave” or for a specified number of payments.
It’s important for the dealer to weigh the pros and cons of outsourcing collections. Do we staff an adequate amount of collectors to manage the size of our portfolio? Are they effective with persuading customer’s to pay on a timely basis? Does the cost of staffing in-house collectors exceed the cost of outsourcing to a servicing agent? Do your homework – discuss loan servicing with your CPA to see if it’s a good fit for your business.
Deal Pack software offers an excellent solution for loan servicing, purchasing payment streams and dealer share accounts. Call and schedule a demo today!