Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of Joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here morning show. Take it away, you two. Well, good morning. Hey. Happy Monday. It's Monday again? I hope so, because, yeah, I'm pretty sure it is. Welcome, folks. Thanks for tuning in to another episode of the Buy Here, Pay Here Morning Show. Uh-huh. And we've got a lot of numbers to talk about today. We do. We do. We're kind of rushing into the last minute. I've been compiling a lot of stuff here and pulling together some slides and this and that to kind of illustrate the stuff we're going to talk about. It's important stuff. It is important stuff. And I, yeah. Did you have any updates of a personal nature? Of a personal nature? Yeah. Not that I can think of. I'm pretty boring this weekend, I think, maybe. Or am I forgetting something? Yeah, well, we actually had a bit of a bust yesterday. Yesterday was the anniversary. Oh, yeah. Our five-year anniversary since our first date in 2019. Uh-huh. And we had in mind, we usually go back to our same spot. Every year we have. Yeah, when we met. When we're in Utah. I think we've been in Utah every year during that. I do believe so. wouldn't know I believe you I i believe so um but we definitely made it uh we had a mind to go and then we found out the place was closed so you know when we met it was on a sunday and they were open and then covet hit and I think that's why they're closed on sundays now yeah because we were planning on going down there yeah it was funny michelle was like oh they're open they're open well of course and then just lucky we didn't drive all the way down there but But we chose to postpone the observance of our first date. So anyway, that was all good. But we'll find time to mark the occasion. Well, and then our second date is Friday. And so that was for dinner. And we closed the restaurant down. So I think we're going to maybe go there for dinner on Friday. Maybe. So if you're ever in Utah, in the Salt Lake area, go to Ruth's Diner. Ruth's Diner is kind of an old... it is I mean people it's it's a local kind of hangout they have like a big um caboose that they've turned into a dining room and lots of outdoor seating and in the summer they have outdoor performers so they you know they have music if you're coming to salt lake just look us up we can yeah yeah well yeah best pie dodo yeah yeah we got all that kind of stuff so I don't think that there's, it's kind of like a, a lull right now. I mean, yeah. So there's not an awful lot happening. Yeah, no, it's a, it's quieter. We got, for me, V8 stuff kicks off this week. And if you're, if you're out there, Thinking about a V8 group, this would be the time to reach out. We have time to get data in. We have time to get you in a July meeting. We don't want you to look up and it's, you know, your meetings have already passed and you're going to say, I could have had a V8 meeting, right? Right. Some of our listeners are old enough to get the joke. Sorry. We date ourselves. Yeah. That's awesome. I do that all the time. Oh, yeah. It's awesome. Yeah. So, all right. Okay. That's it. Shall we? Yeah. Let's dive. Okay. Because you have the wheel. All right, then. All right. So, here we go. As always, you know, conversations with various dealers on social or in our client circles or whatever spark conversations. Mm-hmm. And one of the ones that came up recently was kind of measuring charge-offs, which led us to conversations around portfolio performance. So today is really about collections. How do I know what are the top numbers to look at? And I'm going to get as specific as we can today and show some slides and give some information about the top indicators that I'd be looking at if I were in a position to try to... And this one's not... There are some things that we certainly measure that are built to kind of forecast more, but this is really just looking at current portfolio performance. Okay. So this is what I want to focus on today. So I think the first one would be easy enough to understand. I'm going to show the, let me just do it over here. I'm going to show the one about the first one is just delinquency. So that's, that's easy enough to understand. Most everybody looks at that one. In fact, we talked to a lot of dealers and that's kind of their go-to. Okay. So what's the difference between recency and delinquency? let's do that so delinquency is just simply past due by any dollar amount by any number of days so when you're looking at delinquency at least in the buy here payer space let's back up and say that you know in some segments of the finance industry people would measure delinquency based on 30 days past due whatever 15 days past due In our line of work, it's one day past due, one penny past due. It's like that's delinquency. So that means that you can look at it in terms of number of accounts. Like if you went to the software and you ran a report and it says we have 100 active accounts in our portfolio and 15 of them are past due as of this moment, that's a 15% delinquency based on number of accounts. Okay, so then what's recency? I'm going to get to that next. So, yeah, yeah. So so the other part I need to talk about with the delinquency side first is that some people measure delinquency in dollars. It's certainly banks, lenders, you know, are more likely to you're more likely to see that in dollars. I'm not sure in 20 groups if they do both, but if they only do one, it's probably dollars. And so it's fine. I just, I find that it's quick and easy to get to the number of accounts and those numbers run pretty close. I mean, your typical account size is a dollars is about the same. So, you know, those same 15 accounts that are past due, if you measure them in dollars, it's dollars. So, so just to be clear on that, what you measure is the total dollar balance, the outstanding balance on the account. So you're looking at how much of my portfolio in dollars is past due or at risk. Okay. Okay. So it might be $150,000 of a, of a million dollar portfolio you know it's going to be something similar right so that's kind of the way that um you know we would look at that and then the recency then is this one's a little um you know kind of more complex to explain in that recency is really just looking at How long has it been since the customer paid? So one way to think about it is how recently did the customer pay? Paid current or paid period? Paid period. Any dollar amount. Like how long has it been since we actually had some sort of payment interaction with them, you might say. Okay. So they're kind of measuring two different things. One is interaction and one is dollars paid. Yeah. And this is one where I find that most everybody, certainly 20 groups, when they measure recency, they look at, I haven't really heard lenders talk about recency. They probably look at it, but in 20 groups, at least they look at recency based on. all accounts so in other words you run your report and you have a hundred customers in your portfolio and it might say x percent of them have paid in the last seven days another percentage of them have paid in the last 14 days you see in another and so you're kind of breaking it up based on how long has it been since we had any payment interaction with them okay okay So I just find that one's kind of – and with our VA, we're conforming kind of the 20-group thing because I don't want our dealers to have to run two different reports or produce two different kinds of things. So we're doing the same thing. But I always felt like when we measure recency, we really ought to just be looking at the accounts that are past due. Like if I look – because most dealers run, let's say, 20% past due. That means that I'm looking at recency on 80% of the portfolio that's current. They paid their last payment. To me, if you're running recency on the entire portfolio, it's kind of like pat, pat, pat, pat. I'm doing pretty well instead of getting to what is happening that should cause me concern. Yeah, and so that's why I think for me when I've done it, and it's been a while since I had a dealer even really look at it, but we understand that that's an important one for dealers to consider. I think if you kind of couple delinquency and recency, like a lot of people would kind of want to know So then when you would say my recency is this, but my delinquency is this. And so it's like, you know, 90% of my portfolio has paid this month, whatever. Um, but I'm behind like of, of that 90% or whatever of the, the, the whole amount I've got. 25 that are running delinquent right okay so that's why if you think about this way like the reason dealers would go over to look at a delinquency often is because I'm sorry a recency is because if the delinquency is up let's say you came in on a monday and your delinquency was up 10 above what you usually see then I think the next thing you'd want to see is okay of those customers that are know past due would be my my analysis is how long has it been since they paid so in other words they could be on a payment arrangement and they could be making payments and and so that's why it's important to kind of filter that and think beyond just the delinquency to me delinquency doesn't begin to tell the story okay and we see dealers and I might as well address it right now because we'll see dealers ask well how much what kind of delinquency is typical well Okay, what's typical might be 20, 25%. I was going to say, in the buy here, pay here world, those of you who are new, get used to hearing, it depends. Well, there are a lot of variables here, right? So it's like a lot of things to consider. I mean, I'm just going to say it as the newbie. If you're trying to run a business and that's what you get as an answer for so many things, that's so frustrating. Yeah, so let's get specific. I can answer this for people because I think, and we have this, obviously, these conversations to an extent in our V8 group. So I can say that if you're looking at So first of all, it's important to understand that delinquency number would be different on a Friday morning versus a Saturday morning. Why? Because a high percentage of most dealers portfolios are biweekly payments or weekly even. And so they come due often on Friday. And so those customers who haven't paid, you know, you're going to see delinquency spike on Saturday morning if the portfolios come and due on Friday. So it's like you have to, when I say it depends, it's like what day of the week are you want to look at? So if you are new dealer, whatever, is a delinquency report something you do daily or something that you do? Most do it daily. I don't want any of our dealers that we work with looking at any kind of reports daily. Like, I've had to have this conversation with dealers in the past. Like, that's crossing into micro-management. Paralysis of analysis, too. Yeah, and you're looking at stuff. Of course, the delinquency is going to move through the week, of course. And so, if you're in there, you know, and so when I say this of dealers, same with collection supervisors. Of course, they have to manage it closely, right? But I think we run the risk of being overreactive. based on pivots in the numbers, which is why I'm giving a total of six indicators here today. Because you don't want to look at one too closely, and you don't want to look at it too frequently. Because with dealers, I would say delinquency once a week should be plenty. So like on a Saturday? I'd look at a Friday morning, because Saturday morning is going to be high. I mean, it's going to be high, but customers come in to pay by noon, or they call in or whatever, and so it's going to spike. I was looking at half empty, and you're looking at half full. So where are you... On the day that everything is due for people that, you know, they might be due today, but it's not due yet. So how did your week end? Yeah. So I want to see because that's the best indication of, you know, delinquents are going to spike on a Saturday. It's common. You know, customers are going to be unpaid. And then we're going to work the accounts. And so as a dealer, what I'd want to see is, okay, how did our week go? How did we finish the week? And so if most of your paydays are on Friday, then that would be Friday morning would be the day you... that you would suggest that they run that? Knowing that Saturday is going to spike and you might want to look, you know, at each, but I'm just saying if I'm picking one, I'm just, my purpose for today was to say, how can we gauge the performance of our portfolio and our collections team? OK, how well are we collecting? And so I would say Friday morning, if I'm a dealer, that would give me a pretty good indication. And now if I look at that list and it's up a little bit over last week, I hope we're charting this thing, you know, every week. Remember, you can't. Yeah, you have to measure everything and, you know, be able to to track it and. And spot the trends. So now you look at that and you say, okay, well, the delinquency's up a little bit. So now I'm going to go over and look at the recency side and say, okay, of the customers that are past due, ideally I would look at that based on, of those customers that are past due, how recently have they paid? Have we gotten some serious past due? Because I always quote Ken Shilson, and I don't know, somebody tell me if I got this wrong, but the quote I remember from him was, in our line of work with buy here, pay here, 30 days is a lifetime and 60 days is a charge off. So the idea is that it's, when a customer's 30 days past due in our segment, because that's, if you're doing bi-weeklies or if the customer, obviously if they got a monthly and a fixed income, then you're gonna have a monthly payment, but that's a lot of payment to catch up from. If a customer gets four and $500 behind, that's a lot for them to have to catch up from. And so we watch that part. So now you'd move past those recency and delinquency. We've talked about that, but I just say, keep in mind, there's a reason we asked you to look at six because no, no one of these really tells the entire story. Okay. So I think you want to look at all these and kind of cross section is kind of the way I always describe it. Let's look at all the different ones and, and, And that should help us know some are more long range, some are near term. Certainly the delinquency and recency is that's more near term. If I were looking at that as a dealer, I'd want to see that number weekly. Good morning, Brian. Now, if we look at collection efficiency, I think what we should do is just share the episode that we did in the past on collection efficiency rather than dealing with all the particulars about that. For that, that's my go-to number. Like, if I only had one number, if I could pick one number I would want to see weekly and track it month or week over week, it would be that number. There's a lot of reasons for that, which, again, we covered in the past episode. But just know that collection efficiency is really just a measure of how many – Payment dollars did we collect this week compared to how many payment dollars we were supposed to collect contractually according to the report? For the week. For the week. Not including past due, but like this week, what are we supposed to collect? Yeah, so contractual is the key word there. And this is where not every DMS will do this. Like I just, this is something that we've talked about in the past. Not every DMS will produce a report that gives contractual. Yeah, it'll tell you how many customers are due. after you know people that have paid ahead and what have you but but I'm really just talking about by the contract because what I'd like to know is my portfolio if I'm a dealer my portfolio has 150 accounts and you know payment is this that the the bi-weekly intervals can make a difference here and I want to know this week we're supposed to collect x And then I would come back at the close of the week and we actually collected Y. And then I'm going to measure those things. And, and this one, I look at a 10 week rolling average, like any one week, it'll be up and down. That'll happen. Right. And it happens based on first Friday of the month and a lot of stuff like that can move it. So, but this, if I picked one to measure how effective the, is my collections team right now. And that's really the best measure in my mind of persistence. And it's one that I've talked about in that episode. I'm sure we talked about as a, if I were to pick one to compensate a collection supervisor on. It would be on this. It would be this one because it's like, this one is saying, We put the dollars in the bank. Some of them came a little late. We had a dip here and a spike here. But over this range of time that we've got, let me make sure I've got the right one here. I'm going to show this one I think is the right one. And I think you're supposed to be on a different banner, too. Okay. Yeah, yeah. Collection efficiency is this one. So now this is – so the markings that you see in blue there, those are – and this is an actual client's report. And you can see this. I grabbed it through the end of May. And so what those blue markers are that you see there, that is the 10-week rolling average. At the close of the period, at the close of the month. Okay. And I know from what you've talked about, your 10-week rolling average, that 93-ish and above is a good number to be trying to keep your collection efficiency at. If you're at about 93, you've got a pretty healthy average. portfolio most of our dealers are better than that which is fascinating to think about that you know here we are in a poor credit segment and we're collecting 95 of the money that we're contractually expected to collect now the reason that that just says so much I'm sorry I yeah yeah it's pretty fascinating And I would say that the reason that even that one is still not a good silver bullet, it doesn't tell the whole story because the thing I always have to remind people is just because we're collecting 95% of the money doesn't mean that we're not experiencing charge-offs. But what this does indicate is that we're not carrying a lot of non-performing contracts. A lot of dead weight. And just so that our listeners know, too, that when you're calculating this number, that large amounts are filtered out. Right. So because, you know, you could look at that and as a collection supervisor, it's like, man we just collected 20 grand from yada yada yada and that it's going to be look so good on my numbers it's like no yeah it's filtered I guess I'm glad you mentioned that because this is a this is a filtered collection efficiency and that just means and so typically we take a thousand dollar payment amount and filter those out like if an insurance check comes in from a total and it's an $8,000 check. We give credit for the part that's collected that was past due or contractually due, but we filter out the rest. So that's why it's meant to really get down to what did we collect compared to what we were supposed to collect, which is the best indication I've been able to come up with it. And I've been looking at this thing for years, a couple of decades. Yeah. And in fact, I've noticed Michelle that I was, I got a Facebook reminder that came up as like, you know, a Facebook memory four years ago this week, I shared a post that said, I have been looking at weekly numbers for some dealer somewhere for the number was 1040 weeks. That was four years ago. So this is numbers that we look at and we're used to seeing this. And I can tell you, like this particular deal that we've got on the screen, they've got their collections manager tied to this. Even their general manager is tied to this number. It's the collection efficiency. Yeah, the collection efficiency number. So they're eager to see how that number closes for the 10-week period, that number in blue. Where did we land? And it also does a calculation there. It's probably hard for folks to see on the screen, but it calculates. It helps the manager know this is what we would need to collect this week to hit the target. You know, you have different tiers in the bonus plan. So this would be the number we need to hit to target. So they're very hyper focused on it. Again, this one's better when your software will spit out and especially will auto generate the contractually expected payments each week. That's very helpful because now all you got to do is go back and run your collection reports whenever you get them in it. and uh and be able to measure that different conversation yeah yeah yeah so let's go to a collected pni per active account and I've got that one also um charted here to be able to share so this one people will ask well okay that's pretty cool so so what we're actually to to do this you need to have the number of active accounts in your portfolio at the start of each month Which is that report that we're working on right now. No, that one actually doesn't ask for the number of accounts. That would be dollars. So it's important for this particular calculation, you just need to know. How many accounts you have that are active. Yeah, and you can usually calculate backwards to that one if you had to, if you missed it or your system doesn't auto-generate. But some systems will produce a... a past date of receivables. I tend to not trust them, but you could check and verify that they're accurate. But really, all I'm really doing here is I'm taking the number of accounts that I had at the beginning of the period. And then at the close of that month, we're going to measure how much principal and interest did we collect. And then we're just going to simply going to divide that by the number of accounts. And that will tell us this is collected P and I per active account that we had at the start of the month. So you can see in this particular dealer's case, because everybody's numbers might be a little different. Obviously dealers have different, they have higher payments. Yeah, some dealers have higher payments. We've got dealers averaging under 400 still, and they're mostly moving up now that they see that in the V8 group. And they say, my number's here. Everybody else's numbers are here. They're realizing they're kind of undercharging maybe. But the reality is we would know. I think with this one, the reason I like this one is you can see if you were the dealer and you were looking at that chart, you'd say, man, what happened to us in April? Why? our collections were obviously down. We collected fewer dollars. And I would just, it's a point of analysis. It's like, should go figure out why, what happened and be able to dig into that. Because this is again, an indication that, you know, we had a certain number of accounts on the books at the start of the period. We would anticipate that those would generate a certain amount of income over the month. And so obviously in that month of April, looking at it, this is what I use this report for. It's just, it's for you as a dealer to compare your numbers to your own prior results you know I don't think this one is as relevant when you compare to other dealers because again their payment amount can be quite a bit different but it's certainly when you just look at you can see month over month they were very very consistent inching up right for a period of time And then they had that one dip. So, so why again, just it's, it's clear on the screen that something changed, you know? And so this is why we like this numbers. Go, go look at it and make sure that really what you're looking for here is just consistency, you know? Yeah. And obviously, it's an indication of how well we actually collect because it doesn't matter what the average payment is in the entire portfolio. Your average payment could be $600 a month. But this is a measure of what you actually collect. I'm looking at this and going, well, no, it's June and May. Yeah, they get those good spikes right around those periods of time. Yeah, and I didn't bring a graph on this other one. I want to talk before we go into static pools. I want to talk about conversion rates. So we can take this one off the screen. And conversion rates are... This one, I probably... If people have an interest in this, just probably need to email me and let me get you some actual instructions on conversion rates. But the two... Well, there are four numbers that we really look at. So this would be based on, this is another one where you have to have your portfolio balance at the start of the month. Okay. So, and everybody should be capturing that number anyway. I hope it goes into the, now this one is kind of along the line of why we asked for this report of the DMS providers, which by the way, we'll be reaching out to the DMS providers this week, circling back to touch base and remind everybody, we know it can kind of slip to the wayside, but We want to make sure and keep that moving because this number is so, so important to dealers in terms of for today. We're talking about measuring portfolio performance and how effective is our collection team. OK, so the way this matters, I call this my own label conversion rate. It's the rate at which the portfolio is converting the cash. Mm hmm. or not converting to cash, charging off. So we're looking at, so if I have the balance in my portfolio at the start of the month, let's say it's a million dollar portfolio balance principle, then at the close of the month, I come in and I say, okay, how much principle did we collect? How much interest did we collect? How much did we recover in terms of repo proceeds? Those would be the ones that are kind of cash. And then the last one would be how much principle did we charge off? OK, so all those numbers would, you know, on a single month again, it's I'm not going to be surprised if the number runs a little high or has peaks and valleys because you might take some extra charge off in a certain month. But certainly we'd like to see the collection numbers, the collected principal as a percentage of the opening balance remain consistent. The interest collected pretty most everybody's doing simple interest. So that one does run pretty consistent interest as a percentage of the start. But we really just want to watch very closely the principal and P&I collected as a percentage of where we started. And then same thing for charge offs and repo proceeds. And then we can take that information and build all kinds of projections and really important stuff. This is one I would be recommending dealers that they track it monthly. But I would urge really only looking at it on like a three-month rolling average once you have enough months in there. Watch that number on a three-month roll and then just make sure that it is running pretty consistent. If it dips, dig in, find out why. Yeah. This actually, it brings a... thought. I have a deep thought. You're thinking this morning? I am thinking. It's amazing. I was thinking about this when you said charged off and stuff. This is a little bit of a squirrel. It's something that I have observed with dealers that we've worked with in the past. About How or about when you are charging accounts off and and I've watched it's an interesting thing and it's and it's to me it's like what your portfolio is doing is what your portfolio is doing and it doesn't matter what what how many accounts you have sitting over here and charge off. Well, it does, but where I'm trying to go with this is that I've watched dealers hold on to accounts, and it's an interesting thing, and they won't charge them off because it'll look bad. Yeah, that's dangerous. And I'm like, okay, so wait a second here. It doesn't change how much money you're collecting during the week. It doesn't change how many people. It's like it would look bad. And so to me, when I watch dealers do this and they're holding on to stuff and they're making excuses for the stuff and why we're not da-da-da-da, it's really an ego thing. Is, is because we've worked with dealers too, that they are like, if it's 30 days, it's, it's, it's gone. It's charged off. And then, you know, in their 20 groups, the other dealers like you're, you're, you're, you're doing that way too fast. You're not, you know, you're charging it off way too fast, but one of the cleanest portfolios ever. And this person comes from banking. And so it's just I you know, when I you talk about the conversion rates and the charge off stuff, I guess my little side note is, is it may if you're ready to start cleaning up your portfolio so that you can see really solid good numbers. It's like, let's just this is spring cleaning that needs to be done because you haven't done it before. It may look really, really shitty on your reporting for a month or two, but it balances itself out. And especially if one of the reasons why you're holding on to that or your team is holding on to that is because it affects their bonuses. And so it's like maybe it shouldn't be reflected on their bonuses. I had a manager tell me that one time on a consulting visit, and I was barely getting to know him. I'd been there a day, and they said, yeah, I don't want to charge these off because it'll hurt my bonus. The manager says, ding, ding, ding, red flag. Yeah, that person's not with the company anymore. But bottom line is, you're right. And I think the other piece of that is, Look, some dealers would kind of have to. Like if they're on a line of credit with the lender, that's going to be a problem. You can't have these non-performing contracts sitting there. You're going to need to charge them. Well, and it does create a problem with any lender. It's like you've got to keep your portfolio clean. Sure. And this is part of the benefit of being with a good lender, right, is they will kind of coach dealers on that. But really what they're trying to do is make sure that the – The assets are valid, which is really wise. Take a dealer away from a line of credit. They're totally independent. It's their decision entirely. Absolutely true. They can absolutely do that and not, they don't have an obligation to charge it off. There's no requirement that says you need to charge it off. What we would be advocating for in that situation is, Be consistent in order for you to know that your balance sheet is real, because that's one of the more dangerous things we see in this industry is when people start kind of carrying non-performing contracts, then that gives a false sense of where we're at in the business. And that's just dangerous. That puts people sometimes in a bad position. We would recommend consistent practice, monthly practice. Accounts need to meet a certain criteria. And if a lender does come into the picture six months from now, they're going to appreciate seeing that, that you have a steady practice and a follow-up. It's like that spring cleaning. What do you got in your junk drawer? Because your junk drawer should be like organized. yeah and pretty empty yeah yeah yeah so yeah I think it's it's like um yeah we just want to see it be consistent and that way all of these metrics that we're talking about here would be meaningful because there you can see that almost all of them are designed to measure because when we talk about again that 95 but I didn't cover this well enough part of the reason that we want to look at collection efficiency instead of just delinquency is we've had dealers that run very high delinquency, relatively high. They might run 30, 35% delinquency, but they still collect the money. So they're, they're, they're allowing customers a little more time and maybe they have a little longer grace period. So they have customers running past due all the time. And, but they're getting the money in the bank. The contractual money for the month is getting in the bank. It's just delayed by a month or, or, yeah, they're just, okay. So you can see if our collection efficiency is running consistent, like 93% above and it's consistent, our delinquency is consistent. It doesn't matter as much to me. You don't want to see that delinquency number get too high. And I'm glad we talked about this because this is something I don't really get a chance to talk about often enough. You know, if you run, let's just compare drastic examples. If you're 40% delinquency instead of 20% delinquency, both of those dealers can still collect 95% of the money and their cashflow and their bank accounts are just fine. For somebody who does what I do, when I see 40% delinquency, I think of that as a management thing. I think about how many man hours are required to manage that portfolio when it's got that many customers past due. So to me, it becomes an efficiency question and a manpower And that makes sense to me more and more as we talk about these kind of things because it means that you have less accounts on autopilot. You have more accounts that need touches, which means you need more man hours and more people to handle the touches. Whereas if you're keeping really clean and have good communication, you've got a healthy portfolio, you just don't need as much. Yeah. And we could bring it to the morning show in the future. We haven't talked about in a while this idea that when we go in and meet with a new dealer, often we draw a pie chart and say, talk to me about what percentage of your customers are what I would call high-maintenance customers. They require a ton. You hear about them all the time on social media, the high-maintenance and the heat ones. Yeah. Because they just got to be persistent. And look, the reality is we're financing customers who haven't shown a lot of financial responsibility. They need a lot of help and education. And so we know there's going to be a certain amount of that. But we see that it's, I mean, typically 75 plus percent of your accounts are, you know, you don't have to deal with them. Yeah, probably 70 percent or something are just no problem. It doesn't mean they don't have an occasional hiccup, but they generally are managed or payments just fine. And then you've got this kind of high maintenance segment. And then there's a real small sliver of customers that we call managers. you know, just troublemakers, problem customers, like those are the ones that are... They had no intention in the first place and they just want to make your life heck. Yeah. And so we obviously want to eliminate those as quickly as we can and move on. And so bring those business relationships to an end and move on. But But the other part of that, I guess what I'm getting at is that you're going to have some delinquency, right? That's the nature of our work. And so I think you want to keep reasonable expectations around that. You want to track it and make sure it's consistent. And then what you don't want to do is have it become so far delinquent that it becomes a risk of charge off. You just want to, because the farther behind the customer gets, the more likely they're going to have trouble catching up. And oh, the other thing I didn't mention on that collection efficiency is when people have the authority to defer payments in the software. So this is something we got to be super watchful of. This is where we can start to, and that would also show up in that collection efficiency. We advise our dealers that, that the ability to do that is frequently not in the eyes of, not in the hands of any collector. It's just not. And in some cases, not even the collection manager. It's like, this is something that is higher up. What's happening with that? Because holy heck, we have seen how numbers can get so incredibly skewed because they just keep doing deferments. Part of why we track more than one thing. Because if you had a lot of deferrals and people weren't actually paying and the payment was getting due dates were getting changed, then... That would show up in that collection efficiency number. That would show up in those conversion rates. Delinquency is going to look great. Well, and if you're bonusing based on delinquency, man, that's playing the system. Yeah, that's right. And so that's why we got to measure more than one way. We've seen that. We've seen that in dealerships where the collectors are playing the system and they're shifting things around so their numbers look good and they get bonused. It was said to me many years ago that human beings tend to work their pay plan, right? They tend to work their bonus plan. They know. And we want to hire people that are smart. And people, you want to hire people that are smart and you want to pay your people well. Yeah, for sure. And then we did a whole episode before on static pools, but I can quickly just cover that one. Static pools are really just, and this is a long range measurement. This is something you've come back in and measure and you really need to get the account seasoned. And so I don't talk about this one much. What does seasoned mean? It just means they've got some maturity to them. They've been on the books for a while. Okay, a while. I mean, that's really subjective. So give me like, if it was your portfolio, what is a seasoned account? Is it 10 payments? I probably, if you're asking, I probably wouldn't even be looking at this until my accounts had at least 18 months of history. Okay, so you're talking seasoned paper, the kind of seasoned paper that if you were selling notes and you had good contracts that were 18, you'd get top dollar for that. Yeah, but I don't want to confuse the static pool thing. So static pool in the simplest explanation for me would be this is, This is a measurement of how many of your accounts and numbers or dollars made it to the end. This is a measurement. If you sold 10 cars in the month of February of 2022 and you tracked all 10 accounts, how many of them actually charged off? What percentage charged off and what percentage still performing or have already paid off? In 18 months. No, across whatever the period. Some contracts might take 36 months. That's why I'm saying it's pretty meaningless to me as a measurement when the account is still active. There are other numbers I would go look at instead to give an indication of that. But static pooling is just it's most used to assess underwriting. Like if you had a management change or you added a new software at a certain point, then going to measure in the results of this portfolio X versus this portfolio Y is kind of where static pooling comes into play more. But as far as an ongoing thing with an active portfolio that still has a lot of balances on the account. or it's not anywhere close to the maturity of the portfolio, meaning they're 36-month notes. I'm only 18 months in. Like, of course, you know, I don't know. So static pooling is something that a brand-new dealer is really, it's not going to be very effective for the first few years. I think there are other numbers. These other numbers we talked about would be more beneficial to them in terms of knowing how the portfolio is performing. It's sort of like they said, it's like a report card. It's like getting a report card on this particular batch of contracts. This is how they graded out or they performed. I think that's too late. It's too late to do anything about it. But it's also, it's a good reason to go like, okay, so we got this really cool new widget that was supposed to help our portfolio a lot. And we spent a lot of money on the new widget. And if we compare our portfolio to, three years into it compared to the day that it started, was the widget worth it? Yeah. And the numbers can't lie here. I mean, people can say, well, I don't think it really changed. You'll talk to a lot of people on around underwriting and listen, there's, there's, there's a case to be made. Some, some dealers will say after many years of experience, they will say, I just don't know in the buy here, pay here segment that there's anything that you can do. That's going to be very predictive. I think there's always going to be just like a, It's a bit of a crapshoot is kind of the way they say you're, you're gonna, you're gonna, You can't guess. There's nothing very predictive. And I think we know that obviously there are tools out there now that do a better job of this kind of thing. But I'm just saying there are dealers out there that still feel that way. And I think it kind of depends on how they're approaching underwriting to begin with. Do they approve most everybody? I mean, what do they really do to make a judgment? And that's, you know, when you say predictive, like that a specific loan is going to perform or that their pool is going to perform. Because When we do cash flow forecasting and analysis, in the industry with certain benchmarks, it's pretty predictive how many people are going to charge off. It's pretty... you you you get better it's it is getting better and so you know I when you say it's not predictive I i hear in conversations when we're talking to dealers it's like um when you're doing your cash flow analysis it's like here is what we we can pretty well predict that you're going to have this amount of people that charge off and that's a you know Squirrel to say this is an unpredictable whatever. Don't shoot yourself in the foot because that's if you're looking for money, especially outside money. you better have good metrics where you can say I predict or it's a pretty good predictor of this is how this portfolio performs. And so it's like change the vernacular, change the way you're looking at it and start measuring because I bet you that a lot of dealers, they may not be able to predict loan to loan to loan, but they can predict their portfolio. If they've been tracking certain numbers, it's like, we're going to see this. And then when you do that an awful lot and you see a high, you know, out of the ordinary spike or dip, it's like, that's where the red flags, you know, what is happening here? Right. You can see in Michelle's tone there that she sometimes develops a posture of, you need to do this. Okay, I'm sorry. I used the word need. Well, I'm just saying these dealers are officially independent. They get to do business the way they want to. If there's a lender in the picture, that's one thing. But I'm just saying, if it's their money and it's their risk, they can decide how they want to do it. I'm simply saying the numbers... should support if the numbers can't back up what we're talking about because dealers those dealers I'm referring to they're kind of cynical they're basically just saying I would like to be able to say that this account is going to perform better than the other one but in reality some that I think are going to don't and you know some that I don't think will do and so I just I don't know how to guess anymore I don't know what you could possibly sweep that's going to tell me which accounts are going to perform and which ones aren't so obviously there's the customer and there's the deal structure, and there's all this stuff. How did we get all the way off on this? I don't know. Okay, I'm sorry. No, it's all right. It's all right. Well, we were talking about collections and... you know, your, your ability to be able to collect on a portfolio, which is, which is all of those things. And I, I just, I would strongly advise dealers to really start tracking a lot of this stuff. Yeah. There's good software out there now. And if you're not making massive shifts to your underwriting or whatever is like you, you, if, if you've got good numbers, you, you can get to a point where it's like you can predict your portfolio and what's going to be happening to it if you're really watching and tracking. So strongly advised. So yeah, there you go. So you see how Michelle gets bossy with me. Wow, man, I'm not bossy. I'm just, I'm enthusiastically determined. She's very smart. And sometimes she's a little forceful, but that's about it. That's about it. Um, so I would say that, um, just a couple of quick things, what you talked about there leads into the Friday conversation, which is around negative equity and pricing and kind of a markup because that is where you can start to get to a place that's kind of predictive to say what I, what we can predict is if that customer does perform on their payments, this is how long it'll be before you start to see profit. And this is how long you've been working on that. Yeah. We've got some kind of interesting stuff to, yeah. So let's just go through again. We were talking about the six things. First one is delinquency. Second one is collection efficiency. Third one is recency. And we had the conversation between delinquency and recency kind of all together. Next one's conversion rates. The next one is collected principal and interest per active account. So and then static pools. right so those are those are the six things that that jim would strongly advise yeah and we've done we've done individual episodes on collection efficiency conversion rates and static pools so you know you can go back and find those or we'll try to find them share them for you but But yeah, we've done those in some detail, but this is just kind of giving you six. If you track all six of those, five of those are going to be kind of near term, you know, measurement of your indicator. Static pool is long term. Then, you know, you're going to have a pretty good read on how the portfolio is really performing. It's just static pool comes too late to bonus anybody, you know, so really that's why we lean on the others. And then the other thing was take a time to clean out your junk drawer. Yeah, yeah. Charge off that stuff that's not performing. Get it out of the way. Bite the bullet. Rip the Band-Aid off. Because, I mean, it's just, it's the only thing it might change. And if you're willing to just say, all right, we're not going to go back and change bonuses and all of that. It's just like, hey, everybody, it's going to be a hard month. I'm still going to bonus you. But we're cleaning this stuff out. Yeah. And just think about what it means for a dealer when they can, when they can lay their head on the pillow at night and know that their, their receivables report and their balance sheet, if it says that we got 15 million in receivables, that's a clean portfolio. That's a performing portfolio and it's real. And remember that, you know, the those that we have observed that have really clean portfolios that really can track. I mean, they're just amazing. Usually it's like they understand numbers. So understanding the importance of keeping your portfolio clean. Right. And that is, if we are trying to grow a business and not just a job, if we're trying to grow a business, these are things that matter. Sure. Good point. Good spot to wrap up. All right. Shall we? I think that we should. Yeah, that's important stuff. We ran a little long today, but hopefully people learned a little something from that. Yeah. And then we already have what we're going to be talking about this next week. This day is the Taylor Bird. We recorded a conversation with Taylor Bird at the NIDA conference. So we will play that recording and chat about that conversation. And then Friday, we're going to go into that thing about markup and so on. And negative equity. Yeah. All right. Well, everybody, thank you for making this part of your Monday. And we just hope you guys have a killer week. And go out and collect those accounts. Yep. All right. Have a great week. Have a great day. Thanks, guys.
