By Scott Hendriks
The adoption of eContracting is gaining speed as automotive dealers and lenders alike try to maximize efficiency and market share in a fiercely competitive, tightly regulated market.
eContracting can be a significant improvement over manual processes and sending information by phone or fax because it greatly reduces the time needed – sometimes to mere minutes – for loans to be approved and funded. Taking time and paper out of the process enhances customer satisfaction, facilitates faster receipt of deal payments from lenders, and results in greater cost savings and fewer errors.
How Does eContracting Work?
eContracting allows the dealer to submit an electronically signed contract to lenders. Finance and insurance (F&I) managers use a secure ePortal or a direct connection from dealer management systems to generate electronic contracts. Using a signature pad, buyers electronically sign their documents to a paper-free process. The ePortal software saves the signature using digital certification, inserts the image within the electronic contract and then transfers this combined content to a participating lender of choice.
eContracting systems use Electronic Retail Installment Sale Contracts (ERISCs) instead of paper-based Retail Installment Sale Contracts, thereby enabling dealers to submit an electronically signed contract to a lender, transmit data seamlessly and validate contract calculations. On the lender’s end, eContracting can also provide for the electronic transfer and control of contract ownership for pooling and securitizing to ensure documents are in order for future sale to investors.
Benefits for Both Lenders and Dealers
While the obvious benefits of eContracting for lenders include reduced time, labor and overhead, e-Contracting also provides a competitive advantage by streamlining the funding process and expediting dealer compensation.
Lenders will reduce fraud risk due to the secure, electronic nature of eContracting and have new digital audit trails that help with risk and process compliance as well as loan securitization. Additionally, lenders will see an elimination of courier fees, reduced errors and subsequent delays, and automated enforcement of internal policies. Some have even been able to widen their geographic footprint since loans can be originated almost anywhere.
Dealers are big winners, too. While it can take as long as a week for a deal to be funded with a paper-based contract, dealers are now realizing same- or next-day funding with eContracts. Waiting for contracts in transit can be virtually eliminated, leading to improved cash flow. Spending less time in the F&I manager’s office after a completed buying decision also minimizes sales rescissions.
Dealers will see reduced costs for purchase and delivery of packages and improved customer satisfaction due to deals that close more quickly, with fewer errors and without missing information. Additionally, significant reduction in data re-entry allows dealers to satisfy buyer options for another type of loan, new terms or error-free migration from a purchase to a lease.
Because each step in the eContracting process creates an efficient lift and/or cost reduction, dealers and lenders can share in a phased approach while realizing incremental returns.
Moving Beyond Chicken-and-Egg
It’s time to move beyond the chicken-and-egg situation impacting industry-wide adoption, wherein more dealers would adopt eContracting if more lenders did, and vice versa. These days, a typical buyer has almost zero tolerance for filling out paper credit applications and waiting hours for loan approval. Dealers and lenders that implement eContracting will enjoy a distinct competitive advantage over those that do not.