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HOUSTON — Buy-here, pay-here was founded on the concept of
customers paying directly at the dealership. Theoretically, this was intended
to build a stronger "bond" between the customer and the dealer after the
vehicle was sold. It also allowed the dealer an opportunity to physically
inspect the collateral (the vehicle sold) periodically over the entire term of
the contract. Hence, BHPH was rightfully named, "buy here, pay here" because
the majority of repayments were made in person by the customer.

Payment procedures have changed dramatically over the last
few years given a much different economic environment and the evolution of new
technology. Today, operators must be particularly diligent in their collection
procedures as today's BHPH customers are short on liquidity and long on
expenses.

Today's successful BHPH operator must provide multiple
options for customers to make their contractual payments and eliminate the need
for them to drive to their lot to pay in person. In addition, with inflation
operating costs are rising faster than customer down payments and repayments
thereby increasing risk and reducing return on investment.

Therefore, prudent operators must strive to become more
efficient in collections without increasing their overhead. Further, operators
must seek to have customer payments deposited as quickly as possible to their
bank accounts and eliminate the need for personnel to process these customer
repayments manually.

For all of the aforementioned reasons alternative repayment
methods have become an integral part of the BHPH collection process. Pay
portals integrated directly into an operator's dealer management software
system are now a necessary tool in a BHPH collector's tool box. These
electronic portals allow operators to process customer repayments faster and
more efficiently by eliminating the need for manual processing. The use of
electronic portals to accept payments improves internal control over cash
receipts and increases cash flow. Operators who are not using electronic
payment methods are missing an important competitive advantage.

When it comes to reviewing pay portal options consider
whether that service provider meets certain industry regulations. Some
providers today may not meet either! At our upcoming NABD Conference in Atlanta
on Oct. 21 through 23, 2012, we will discuss these standards in detail and how
to make sure your business is working with firms that meet and exceed them.

A danger in using electronic portal payment processing is
that the "personal bond" with the customer is broken. That is, the operator no
longer meets with the customer on a regular basis when payments are made.
Therefore, if the customer defaults on a repayment the operator must scramble
to take the appropriate action.

If that action includes repossession then the operator must
locate the vehicle and the customer as quickly as possible. In these
circumstances the use of GPS tracking technology is recommended. If a GPS
device is installed when the vehicle is sold the electronic "bond" replaces the
need for in-person repayments. The combination of electronic portal payments
and the use of GPS devices comprise a winning technology combination!

For operators who use the indirect BHPH business model (that
is, where they purchase contracts from unaffiliated dealers) electronic
repayments are needed for collections. The indirect business model has become
an important source of capital to smaller operators who do not have their own
credit lines. Therefore, smaller operators are encouraged to utilize electronic
payment processing, too.

In addition to processing customer payments electronically,
successful operators also offer other repayment options such as debit cards,
ACH, "moneygrams," credit cards, prepaid debit card issuance and other
alternative payment methods.

In addition, some customers pay at nearby convenience stores
or at Wal-Mart, thereby avoiding a lengthy trip to the dealer's sales lot. All
of these alternatives enhance an operator's collection processing and
facilitate efficient customer payment processing.

These alternative repayment methods are a major improvement
over the old "pay at the lot" procedure and will continue to be an integral
part of good BHPH collection procedures in the future. The cost of the various
repayment processing options should be evaluated against the benefits they
provide to determine which alternative(s) best fit in a particular operator's
collection program.

At the last several NABD conferences we showcased these
technologies and encouraged operators to consider implementing them. At our
upcoming East Coast BHPH Conference on Oct. 21 through 23 in Atlanta we will
again have interactive sessions where attendees can ask, and get answers to,
their questions about alternative repayment strategies and talk to operators
who have actually implemented them. This networking opportunity is the best way
to evaluate all the numerous alternatives.

In the challenging BHPH environment of today operators need
to work smarter, rather than harder. The use of alternative payment processing
methods to enhance collections and cash flow is highly recommended because "pay
here" appears to be the past and "pay there" is the future. Good luck!

Ken Shilson is founder of the National Alliance of Buy-Here
Pay-Here Dealers, the only used-car special interest group exclusively for the
self-finance industry. Upcoming educational events include the NABD Boot Camp
in Monroe, N.C., on August 18 and 19, 2012 and the East Coast NABD BHPH
Conference in Atlanta on Oct. 21 through 23. For more information or to
register for these events visit www.bhphinfo.com or call (832) 767-4759.