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A Guide To Debt Collection For Car Leasing Companies

by receeve
Thursday, June 23 2022

#collections

startup

Debt collection is a key concern for multiple industries: BNPL, utilities, and, increasingly, car leasing. The global car leasing market is steadily growing in value. Consider the following statistics:

  1. The automotive rental and leasing market size will be worth $614 BN by 2028, growing at a compound annual growth rate (CAGR) of 7.75%.  
  2. While the leasing market itself will increase from $82 BN in 2022 to $131 BN in 2029. 
  3. The European market will grow by $62 BN from now until 2025. 
A Guide To Debt Collection For Car Leasing Companies
Source: Verified Market Research

This article examines why the car leasing market is increasing, outlines the importance of debt collection, and provides 7 tips to help car leasing companies collect their debts efficiently and effectively. 

Why is the car leasing market increasing? 

It’s worth noting that while car leasing is similar to renting, there are a few key differences. First, leased cars come from a dealership and not a rental company. Second, leases usually last far longer than rentals. 

There are 3 main reasons why the car leasing market is quickly gaining momentum.

  1. Consumers are increasingly aware of its benefits

Leasing a car is quick and convenient. Drivers can select a car of their choice, hand over a relatively small deposit (anywhere from 10 – 20% of the total cost) and pay back the rest via a series of low monthly payments. Insurance is included in the price, making leasing an even more appealing option. 

When their contract is over, consumers simply hand back the car and select another one. They don’t have to worry about depreciation (i.e. the car’s value decreasing over time) or deal with the hassle of selling it. 

  1. It is cost-effective and straightforward for businesses

Many businesses need to provide their employees with cars. For example, real estate agents drive themselves and clients to properties every day—so they need a car to do this. 

Leasing provides companies with the ideal solution. The leasing company handles all maintenance requirements as well as paying road tax, lowering the business’s fleet maintenance costs while also minimising unnecessary hassle.

  1. Increased demand for luxury cars

Despite a turbulent global economic outlook, the demand for luxury cars has increased over the past few years, growing at a CAGR of 9.3%. However, not everybody can pay for their own luxury car—which is where leasing comes in. According to Amey Vikram, lead analyst at Technavio for automotive services research, “Leasing cars is emerging as the most feasible way to own an aspired luxury car with least commitment and most importantly less upfront cash.”

Customer acquisition versus debt collection

While car leasing companies should obviously focus on new customer acquisition, this shouldn’t come at the expense of debt collection. There is little point in acquiring more customers if you cannot effectively resolve outstanding payments from your existing customers. 

New customer acquisition is exciting, but you’ll soon run out of cash if you don’t recover your debts. Conversely, if you collect your debts early and receive payment as soon as possible, you can invest that money in other areas of your business and generate more profits.

How to collect debts efficiently and effectively

By following the seven steps outlined below, car leasing companies can successfully collect their outstanding debts with minimal hassle.

  1. Optimise the pre-collections stage

Car leasing companies should begin the collections process as soon as they invoice customers. Moving forward, they should provide regular nudges alerting customers to how much they owe, the deadline, and how they can repay their debt. For example, outlining the various payment service providers (PSPs) they offer or explaining that customers can set up instalment plans if they wish. Companies can even educate customers on why resolving debts as soon as possible helps to improve their financial situation.

  1. Testing different messaging strategies

Collections teams need to test out a wide variety of strategies to identify which messaging works for which type of customers. Some might prefer short and serious messaging while others might respond best to gentler, more friendly messages. 

In our best practices for debt recovery emails, we offer you 4 proven dunning strategies (loss aversion, social proof, anchoring, add reciprocity), providing ready-made debt recovery templates to fuel your collections success.

  1. Digitise your payment processes

Car leasing companies should make it easy for customers to pay what they owe. In today’s world, that means providing digital-first repayment options. Send out dunning messages via digital channels and allow customers to handle repayments online, whether on their mobile, tablet, or desktop. 

  1.  Provide self-service options

Give past-due customers control over their repayments. Don’t make customers wait in a call queue and speak to an agent to repay their debts. Instead, send out dunning emails/texts linking out to a self-service repayment landing page, ensuring they can handle the process without needing anybody else’s help.

  1. Have a varied digital collections strategy

Car leasing companies should cater to their customers’ varying preferences. For example, some might prefer to receive dunning messages via text and set up an instalment plan, while others might respond better to emails and would like to repay their debts in one go. Utilise various communication methods, provide multiple payment options (e.g. in full or via instalments) and offer different PSPs. 

  1. Segment customers appropriately 

Keep track of how customers behave: the messaging they respond to, the channels they use, or when they open messages/take action. Using this data, you can then segment customers into like-minded groups. This makes it easier to serve tailored dunning strategies at scale. 

Once you segment customers into different groups, you can better predict how they will behave and can modify your collections approach accordingly.  

  1. Carefully monitor your collections KPIs

Keep an eye on key collections KPIs, including Average Days Delinquent (ADD), Days Sales Outstanding (DSO) and Collections Effectiveness Index (CEI). Track the impact of any strategic changes on these KPIs. Besides, you should also monitor digital communication KPIs, such as your email bounce rate, open rates, click-through rates, landing page views, reaction time, and payment success rates. Track any changes to key KPIs and use these changes to identify which strategies are/aren’t working. 

Be data-driven in everything you do

Car leasing companies must prioritise debt collection if they want to continue growing while also increasing their cashflow. However, this is only possible if leasing companies have full control over their collections data. By implementing a collections management system and keeping critical data in one place, collections teams can monitor the impact of their different strategies and keep optimising their collections efficiency on an ongoing basis.