Hi All

Please see below a copy of an article I have just written for MIM magazine, the magazine of the Insitute of the Motor Industry in the UK.

 

Q) How can I do a cash conversion?

A) Following from last months cash conversion, here’s another popular technique for those customers whom have been saving a regular amount for some time.

Let’s assume an arbitrary purchase price of £10,000, and the customer has been regularly saving £300 month.

Position with the customer you are not interested in how much money they have saved, as it's not your business, but lets assume you have £11,000 in your savings account. In a few days time the customer will take £10,000 out to pay us for their car. This will leave them with £1,000 and over the next 3 months they’ll save another £300 month to give them£1,900 in that account. Map this out on a piece of paper as below

£11,000
£10,000 deduct for car
£1,000 left in account
£300 saved in 1 months time
£300 saved in 2 months time
£300 saved in 3 months time
So in 3 months time you’ll have

£1,900
3 month old car

On the opposite side draw this out:

£11,000                                                     £11,000
£10,000 deduct for car                                No withdrawal
£1,000 left in account                                 £11,000 left in account
£300 saved in 1 months time                      £300 to us to pay for car
£300 saved in 2 months time                      £300 to us to pay for car
£300 saved in 3 months time                      £300 to us to pay for car
So in 3 months time you’ll have

£1,900 in Savings                                      £11,000 in savings
3 month old car                                         3 month old car
Saving of £300 month                                 Payment of £300 month

Ask the customer, in which of these 2 positions would they be earning the most interest in?

Follow this up with the trial close, "so if there was a way to maintain your savings account balance without committing yourself to any additional monthly costs would that be of interest to you?"