There is the application process, and then comes the appraisal, next comes escrow and a million signatures securing the money loaned against whatever collateral is required. The key word is collateral because if there is no collateral involved it becomes very difficult to borrow money.
They have loans without any collateral but they usually charge a premium interest rate for them and those loans tend to be for smaller amounts. But every loan whether it be a car loan or a home loan or a line of credit has certain requirements that have to be met before any credit is granted. And all require signatures of responsibility with a promise from the borrower to repay the debt.
When we get a parts account with our local dealers they require us to fill out a credit application with a signature to guarantee payment of the debt. This is the way our financial world works. If we need to use someone else’s money for a certain period of time there is usually an interest charge attached to it.
When we go buy something at a department store we can either pay cash at the time of purchase or charge it to a credit card. If we choose to charge it we pay for the amount of time we use the borrowed money. If we want to avoid interest charges we pay immediately upon receiving whatever merchandise we purchased.
Correct me if I am wrong, but the collision industry is the only industry that loans money without any credit applications, without any signatures of responsibility and we loan it out for free. We have lost control of our accounts receivable to the point that I’m sure that the free interest we give is calculated into many insurance companies’ bottom line profits.
If we were able to calculate the amount of profits that are produced nationwide through our industry’s accounts receivables being reinvested in short term interest bearing accounts we would be shocked. Then if we calculated the amount of labor it cost us to collect this money we loan out for no interest this amount would stagger us.
We have all heard the term used by many adjusters when we are looking for payment before releasing a vehicle. “You can’t hold the vehicle ransom,” they say, as if to imply that we are doing something wrong. No, we are not holding the vehicle ransom we are holding it for collateral like every bank in the nation that loans money.
Try going to the grocery store and loading up your cart with food, then go through the checkout stand without any money. When the cashier won’t let you have the groceries, throw a big fit and call the manager and see what happens. You will still leave without your groceries unless you pay for them. It doesn’t matter how many times you have been through that checkout line, you still need to pay for what you get.
How many of us have been promised prompt payment if we release a vehicle only to find ourselves trying to collect final payment weeks later? The most common line I hear is, “I’m working on it.” This has become a standard statement used to let us know they haven’t forgotten about the money they owe us. But please remember there is a huge difference between someone acknowledging that they owe you money and someone actually paying you the money they owe you.
I have a good friend who went through some hard times and needed some money. Even though he always lets me know he owes me this money, he has been unable to pay me and it has been eight years. So although it’s comforting when some adjuster tells us that they are working on getting us paid, it’s far different than having the money deposited into our checking account.
We have several large DRP accounts and we do the same type of payment processing with all of them. Some pay promptly with no problems at all. But there are a couple of companies that continue to allow the accounts receivables to build and build and purposely make it difficult to get paid.
Now this one particular company’s method of payment requires that everything be finalized to perfection exactly the way they want it or it will get kicked back from the system, thus requiring the information to be corrected and uploaded again. After several attempts to upload these files once again we could see that there was a definite problem with the system on their end. We contacted our service provider to make sure we weren’t the problem and they verified that it wasn’t us. We relayed this to our DRP contact at the insurance company and he said he would look into it.
A couple of weeks went by and still no payments. Then when we tried to contact him again we found that he had been called out of town for two weeks of training. I felt enough time had gone by so I decided to contact someone above him to ask for some help in getting paid. I finally reached his supervisor and she solved the problem in one day. She contacted a couple of people and made it their priority to get us paid and we got paid that same day. This supervisor was awesome and had the authority to get the job done. She was as upset as I was that we weren’t getting paid.
I’ve also experienced what I call the, “I’m afraid that if I ask to get paid I might make them mad syndrome.” And I’ve seen many of them get mad when we finally demand payment. This is mind boggling when I try to figure out how we got this way; we are like a timid industry that operates out of fear.
The thing most of us should understand is that the majority of the money owed to us was ours to start with. We pay for the parts and the labor and the materials out of our pocket so the majority of our accounts receivable is money we loaned to the insurance company to complete their repairs. The only money that is actually theirs is our profit dollars.
Remember this; an account that doesn’t pay isn’t worth having no matter how many cars they send you. If you are having trouble with outstanding receivables don’t be afraid to go over someone’s head to get paid. If they get mad, shame on them. Would they like it if on payday their boss told them that if they expected a paycheck they better start looking for another job? I think not.
We work hard running our businesses, which, let me remind you, is repairing collisions. If we are going to have to hire full time employees just to collect accounts receivables then we should be charging interest. We have become finance companies for the insurance companies and we do it for free.
Where in any of our DRP contracts does it talk about timely payment? It doesn’t. Go read over all of your contracts and nowhere in any of them is it required that we extend them credit. Why do we spend hours and hours collecting money that is already ours and listen to excuse after excuse and perform upload after upload while they collect interest on it. There is no financial institution in the world that could stay profitable under these circumstances.
I suggest that we turn this situation around by requiring that we receive full payment within 10 days from our DRP’s (it’s the law in the state of California.) And the insurance companies that we don’t have accounts with, well it’s like the grocery store - no money no groceries.
I know this would help both sides of the industry as far as efficiency, because whether they make final payment when the vehicle is delivered or a month down the road it’s still the same amount of work involved. They have all of the time in the world to analyze cycle time and other metrics, but when it comes to paying us they say they are working on it. Nothing says we need to extend credit to anyone especially without a proper credit application and a signature of guarantee. We are not finance companies, and if we are forced to finance them then we should start charging interest!
In business for 26 years, Lee Amaradio, Jr. is the president and owner of “Faith” Quality Auto Body Inc. in Murrieta, California. With 65 employees, he attributes his success to surrounding himself with good help, claiming to have some of the best office staff and techs in our industry. Amaradio has been in this industry long enough to see the handwriting on the wall. He feels that now is the time for us to unite as an industry before it’s too late. He can be reached by email at firstname.lastname@example.org.