Singing Pig

I have started an new thread, as the original thread Selling a Proven Money Making System with ongoing training/mentoring seem to have drifted into discussion by those of us who are using it. I think our comments on the practicalities, good and bad, are better in a thread set up for this, and hope other members agree.

Current Exerience
Started Pal's sytem at the end of March 2006. Four months in, I have 140 customers generating £1,300 a week, and have lent out £50K. Have done CCJ's on 3 borrowers (probably wasted money on the court fees, but look on it as a point of principle) and there will be 3 more this month. My lending terms are looser than Paul recommends in his manual, but for the most part has worked well though I do have more people behind in payments than I will accept long-term. Have a chap who trades on ebay, now borrows £2K a time and pays this back by internet banking over 6 to 8 weeks as he sells the stuff he buys in bulk. Another 6 customers also pay direct into our account (but by phone or internet bank, not by Standing Order - which I don't think work in our business).

Bad Points
The Competition Commission's enqury into Home Credit (still ongoing) have issued some interim conclusions. In the Provisional Findings Report, Item 13 has:

We found that although there are few barriers to small scale entry to home credit, there are significant barriers to large scale entry or to expansion. These included the risk of adverse selection (new customers represent a worse default risk than existing ones), the advantages enjoyed by incumbent lenders, and the need to build local density to operate efficiently.

Adverse Selection means that any new entrant is more likely to pick up clients who either can no longer lend from existing players, or who might be on restricted credit terms. This is why new entrants should, for safety and minimal bad debts, follow Paul's limits and procedures. Sometimes though, you just can't help but pick up a number of problem clients

Picked up a lass, who paid regularly for 4 weeks (though currently 3 weeks behind). She introduced her mum, and her mum then introduced 3 others on the (quite respectable) estate, who then introduced 6 others all within a week or so (total of 10). Just discovered mum and (probably) all those referred on from her have a crack habit, though quite well controlled - and this probably explains why payments are behind, with repeated visits needed to get any sort of money. Unlike some deliberate avoiders, I think I'll get my money back - but doubt if I'll have made anything on them, taking into account the number of repeat visits needed.

Tip: Go through your clients and rate them A, B, C, or D. A's and B's are what you want your client base to consist of long-term. C's are those you have and persevere with at the moment, but will dispose of when your portfolio matures to the size you want. D's are the customers for whom you made a bad lending decision, and to whom you won't lend again

The only other significant bad decision I've made that I can think of is to do a top-up to an enquirer from my post office advert after only two repayments (went from £200 to £350) after him pleading that he had managed to arrange with his ex to have his daughter for the whole of the last half term break, and he wanted to take her on holiday for a couple of days. Genuine and specific reason thought I, so said yes. Zilch paid since and he's now 8 weeks behind, now had a Default Notice, and will do a CCJ on him this month via Money Claim Online

Good Points
At least 40% of my loan book is to customers who really appreciate the savings that can be made through Pauls system. Not all of them are the best of payers, and some do skip payments meaning that they might not get much discount in the end - but their heart is in the right place. These are my A and B customers, and I want all my loan book to be to these in the future, and the more A's the better. As a result, I have been thinking about how to reward these good customers. I got my inspiration from a customer I took on a month ago.

He has used just one of the bigger companies off and on for the last 12 years. He last had a loan with them 6 months ago and told me that he said to the agent that he always gets a £300 loan, and the rate is always the same, even though he normally never misses a payment, and usually settles early. She said more-or-less that it is one size fits all, and he gets the same rate as a new customer.

What I have done is to decide on a form of Customer Status: Standard, Bronze, Silver, Gold and Platinum. I have now written a "good news" letter to 3 customers telling them that with immediate effect they have been elevated to Bronze status, and to one excellent customer Silver status. This gives them, for each week they are not in arrears (these have never been in arrears though) for Bronze I will allow them a 5% discount in interest charged; for Silver 10%. I tell them that on a standard £200 loan this will save them approx £9 and £18 respectively, and enable them to finish the loan 1 or two weeks earlier, as appropriate. This protects me, as the legal agreement they sign is the same as everyone else (I have the CCA pre-print mine, saves masses of time plus I don't forget to put in some of the required information) and if they do go into arrears, then interest will continue to accrue up to the maximum in the agreement. It also gives the "reward" that my new customer didn't get from his former lender.

Conclusion
Best business I have ever gotten into, even taking the bad points into account. Met some lovely people (was doing a top-up for a regular recently, and while sitting on the couch doing the paperwork their young son came up and gave me a hug. I thought that was lovely) who really appreciate a genuine company that is not just trying to get the most money out of them.

Look forward to discussing it more with you.

David,

Good idea to start a thread. Interesting post David, although I was a bit surprised at the figures. 140 customers at a total of £50k is a big average (£350) - assume the £1300 you mention is profit (ie. interest) as opposed to cash flow. What are you finding as an average collection per week ? - I reckon mine is about 80 - 85 % but have not performed the analysis exactly.  I have one customer to whom I want to issue a default. Do you have a standard letter you use and do you sign it yourself ? My customers do not even know my surname and that's the way I would like to keep it that way. If you have a standard text I wonder if you would post it here so others could maybe use it ? Also, what is the process for a CCJ ? I keep meaning to go down to the magistrates court to find out as I have been unsuccessful on the web. Is it easy and what does it cost ? Appreciate your input.

Tim  

freddie:

Good idea to start a thread. Interesting post David, although I was a bit surprised at the figures. 140 customers at a total of £50k is a big average (£350) - assume the £1300 you mention is profit (ie. interest) as opposed to cash flow.

Yep, I have some bigger customers that have pulled the average up - my strategy was to grow fast, rather than use maximum safety. I'v ebeen caught more than if you kept to Paul's limits, but one the whole I'v gained. For example, one is a lady on benefits, but gets Disabled Living Allowance, and has more disposable income than many working people. She proved for 6 weeks she could pay £50 on a £200 loan (clearing it completely) that I was happy to go to £1K with her - still a good payer at £60 a week.

What are you finding as an average collection per week ? - I reckon mine is about 80 - 85 % but have not performed the analysis exactly.

Same here. All caused by people on my D list and most of the rest on my C list. The money from the C list I will get - but most are behind target and behind minimum as well. The D's, probably not. As the loan book matures, the C and D customers will diminish and will be less and less prominant, so I'm not worried.

I have one customer to whom I want to issue a default. Do you have a standard letter you use and do you sign it yourself ? My customers do not even know my surname and that's the way I would like to keep it that way. If you have a standard text I wonder if you would post it here so others could maybe use it ?

If you are in the CCA and go on their course, the format is laid out on a ready made form. I've re-typed it in Wordperfect, but can send you a copy if you want.

Also, what is the process for a CCJ ? I keep meaning to go down to the magistrates court to find out as I have been unsuccessful on the web. Is it easy and what does it cost ?

For some reason the link I put in my post didn't come out right. I've redone it, but the link is to Money Claim Online - you can do it all from your computer, but if you are not a limited company you will have to use your name and address. If you want to hide your address, the CCA have a dedicated address you can use at reasonable cost, and all mail gets fowarded to you.

Hi Guys!

I won't be trying to expand my business until I return from a trip at the end of this month but, after that, who knows how huge and how wonderful my client base will be? 

I don't see much point in issuing court proceedings against anybody as this will have zero effect on the scumbags who know the debt-recovery laws far better than any judge - and most of them have nothing the bailiffs can confiscate anyway. It might work in some cases but I tend to think it'll make most slow payers even slower.

Whatever happens, this time next year we'll be millionaires! 

Hi David, great idea.

I'd like a copy of your default letter if you don't mind.

Rumpole, although I can see where you're coming from I'm not sure I agree. Once your client base is big enough, you and 'the company you work for' will be known. A lot of custom comes from referrals, and if word gets around that nothing happens to people if they don't pay, then they'll all stop paying.

At least a CCJ is a deterrant for some people as opposed to no action at all.

Be interesting to see how this thread progresses, and if we can all share ideas and help each other. It may take some pressure off Paul!

Craig

Would really appreciate the default letter as well. Agree that, although it may not be that cost effective, people really need to know that action will be taken as word does travel as borne out by my experience getting between 4 and 6 new loans a week without any flyering at all. I have not joined the CCA yet - am still considering that. Thanks for the link to the claims site - will study it and let you know if I am still struggling. It feels great to have a few others to talk to who are in the same position of starting something new.

Tim  

David a

I started reading pal's original thread and i was intrigued by the simplicity of it.

This may sound like very inexperienced questions but:

Are you going to stop lending so you can reap the profits Otherwise how are you ever going to recoup your 50k?

 Have you set a limit on the amount of customers you are going to lend to?

 Have you worked out how many hours you spend collecting, driving and completing admin duties to give you a estimate of the hourly wage your on?

Thanx

CARTERSMIFF:

Are you going to stop lending so you can reap the profits Otherwise how are you ever going to recoup your 50k?

I decided about a month ago that I would generally now only lend from money collected. This has dropped my lending from an average of £5k a week to less than half this. I now tell applicants that the people financing the business have hit their limit with the bank, so can only lend from that collected. It has had an effect as one person wanted a top-up and they wanted me to sort it within a day. I told her that it was going to be more like a week, and when she asked why I said the above, but also added that other members of her family and associates did not pay on time, and this is the effect. Within a week, the payment record of related people improved greatly.

It is unlikely that the £50K will be withdrawn for maybe a couple of years as all collected money is lent out. Thus, for simplicity, if profits were always £1K a week and collections £1.5K then the loan book would go from £50K to £51K then £52K and so on. The extra £500 is also lend out, as not to do this would gradually reduce the loan book as loans are paid off.

Have you set a limit on the amount of customers you are going to lend to?

Not really. My estimation is that the loan book in a geographical round needs to be aroud £100K to make using an agent viable. My intention is to use an agent when the customer base can support it.

Have you worked out how many hours you spend collecting, driving and completing admin duties to give you a estimate of the hourly wage your on?

Not really. You see I have a main job still which is to operate a lettings agency. Because we have retail premises, over 40 of my customers pay direct in the office (they get 20% discount when not in arrears for doing this - saves my visiting time, petrol etc). Thus there is a bit of a mix. Also, the business is still evolving, so I am spending more time on admin in a strategic sense than I would long-term. I would guess that I am spending 20 hours a week total. Thus assuming no growth from current means a gross profit of £70K pa / 52 weeks / 20 hours gives £65 hourly rate.

I can say though, that the income against overhead and hassle is hugely better than my main job. There may well come a time when I might terminate the main job, particularly if my diversification into cheque cashing (target start date 1 Sept 2006) takes off. (e.g. £500 cheque cashed for around £25. The cheque is banked with charges of around £8 making a net return in a week of £17, or in other words 3.4% return, and the profit is made at the time of the transaction, not when the funds arrive back in our account. I was tempted to look at this at the CCA induction course.)