How should we recognize interest income on BHPH contracts?

Select one accrual method, document it, and apply it consistently. Many dealers use actuarial accrual within the DMS, while others apply effective interest yield. Reconcile interest receivable and unearned interest to subledger reports each close, and confirm payment splits match GL rules.

How do we account for repossessions and subsequent recoveries?

At repossession, derecognize the receivable per policy, record the repossessed asset at net realizable value, track recon on the repo asset, and recognize gain or loss upon sale. Post post charge off collections to a recovery income account with clear documentation.

Which reports should accounting review daily or weekly?

Daily: cash sheet, payment exceptions, NSF list, deposit confirmations. Weekly: bank recs, delinquency roll, deferred down balances, audit trail of changes, inventory adds. Monthly: interest accrual, allowance schedule, charge off report, escrow and tax reconciliation, unit economics by cohort.

BHPH United - Buy Here Pay Here Dealer Education and Training for Subprime Auto Financing In House Financing Lease Here Pay Here Operations Compliance Leadership Marketing and Dealer Success Nationwide

Mastering Buy Here Pay Here accounting is essential for dealers who finance in house. Accurate books drive smarter underwriting, stronger collections, cleaner audits, and consistent profitability. This buy here pay here accounting education page explains the fundamentals your team needs to record every transaction the right way, from deal structure and deferred down payments to interest accrual, allowances, repossessions, recoveries, and portfolio performance tracking. You will learn how to align your chart of accounts with your DMS, close the month confidently, and connect daily cash reports, bank reconciliations, and general ledger entries. We also outline internal controls that protect cash, reduce risk, and improve payment performance. Whether you are building your first policy manual or leveling up a mature operation, use this resource to tighten controls, sharpen reporting, and translate numbers into decisions that improve return on capital, compliance posture, and customer experience. Explore advanced BHPH analytics, practical workflows, and links to deeper dealer education below.

What Buy Here Pay Here Accounting Education Covers

BHPH is not traditional retail. Each deal creates a long tail of accounting activity that must be captured consistently across the vehicle, customer, and portfolio. The right accounting framework increases transparency, supports compliant collections, and pinpoints true profitability by unit and cohort. This education focuses on practical steps your team can implement with your current DMS and general ledger.

Core BHPH Accounting Foundations

Start with a chart of accounts that separates vehicle acquisition, recon, selling costs, deal fees, principal, interest income, reserves, and losses. Align your posting logic to ensure every contract automatically creates balanced entries and that subsequent payments split correctly among principal, interest, fees, and escrow if used.

Chart of accounts mapped to DMS deal types and payment splits
Vehicle cost capitalized and relieved at sale with clear gross calculation
Interest income recognized using an accrual method that matches your contract terms
Allowance for credit losses policy tied to static pool or roll rate analysis

If you are establishing your structure for the first time, consider pairing this guide with operational training to align your sales, underwriting, and collections workflows. See: Buy Here Pay Here Operations Training, Buy Here Pay Here Underwriting Education, and Buy Here Pay Here Collections Training.

Vehicle Cost, Recon, and Gross Profit

Record vehicle acquisition and recon costs to inventory until the sale. At delivery, relieve vehicle cost to cost of goods sold, post any dealer fees, and calculate unit gross. Keep recon detail by VIN so you can analyze front end gross by source, price band, and reconditioning strategy. This clarity helps refine acquisition, improve turn times, and avoid over investment per unit.

Revenue Recognition and Interest Accrual

BHPH revenue includes sales margin on the vehicle and finance income over the life of the contract. Use an accrual approach for interest that aligns with contract yield. Many dealers apply a simple actuarial method within the DMS, while others use effective interest yield to match timing more precisely. The key is consistency, documentation, and reconciliation between your subledger and GL.

Define a single interest accrual method for all standard contracts
Reconcile interest receivable and unearned interest monthly
Document fee recognition policies for doc fees, GPS, service contracts, and warranties

For deeper finance operations alignment, explore Buy Here Pay Here Finance Operations Training and Dealer Accounting Training Education.

Deferred Down Payments and Payment Posting

Deferred down payments are common in BHPH and must be tracked by contract. Post the executed promise as a receivable and apply payments on receipt using your posted waterfall. Clarify whether fees or interest are collected before principal and ensure your DMS and GL post identically. Keep a separate report of deferred down balances to prevent accidental write offs during charge off.

Allowances, Charge Offs, and Recoveries

Your Allowance for Credit Losses should be supported by either a static pool model or roll rate analysis. Set a policy that quantifies expected loss by vintage, price tier, or credit band. Charge off principal when your policy deems the account noncollectible, and maintain separate accounts for recoveries after charge off. Match recoveries to the period received. Repossessions require careful accounting to derecognize the receivable, record the asset received, and capture gains or losses on sale of repossessed vehicles.

Written policy for loss recognition timing and thresholds
Clear repossession entries including impairment and reconditioning on repo assets
Separate GL accounts for recoveries, legal fees, and deficiency judgments

To round out your risk discipline, see Buy Here Pay Here Risk Management Training and Buy Here Pay Here Portfolio Management Education.

Taxes, Fees, and Escrows

BHPH transactions can include sales tax at sale, recurring fees, and optional products. Sales tax rules vary by state. Ensure your DMS tax logic is validated during each closing cycle. If you collect amounts for insurance, service contracts, or government fees, route those funds to appropriate escrow or liability accounts and reconcile regularly. Document remittance cadences for taxes and third party providers.

Daily Cash, Bank Reconciliations, and Close Process

Discipline in daily cash handling reduces shrinkage and speeds month end. Use a daily cash sheet that ties to the DMS payment log and deposit detail. Reconcile bank accounts at least weekly in high volume stores and monthly at a minimum. Build a close checklist with owners and due dates so nothing slips across periods. Lock periods in your DMS and GL after review to prevent back dated edits.

Daily cash sheet tied to deposits and DMS reports
Separate till and cash drawer accountability with sign offs
Month end checklist with reconciliations, accruals, and variance analysis

Internal Controls for BHPH Dealers

Segregation of duties is vital. Ideally, one person posts payments, another prepares deposits, and a third reconciles the bank. If your store is small, use compensating controls like owner review of exception reports, camera coverage of cash handling, and mandatory vacation rotations for cash handlers. Audit trail reports in your DMS should be reviewed weekly.

For audit preparedness and compliance alignment, explore Used Car Dealer Audit Preparedness Education, Buy Here Pay Here Legal Compliance Education, and Buy Here Pay Here Compliance Education.

Portfolio Analytics That Inform Accounting

Great accounting turns into great decisions when paired with actionable analytics. Static pool analysis reveals expected loss by origination month and price tier. Delinquency buckets highlight payment performance trends. Recovery rates show the value of your collection strategies. Unit economics bring it all together to reveal net dollars per car sold after losses, recoveries, and operating costs. Align these analytics with your allowance policy so the GL reflects what your data predicts.

Delinquency and roll rate reports reconciled to the subledger
Static pool loss curves by cohort to support allowance estimates
Unit economics dashboard connecting gross, recon, loss, and recovery

For a deeper dive into profitability, review Buy Here Pay Here Profitability Training and Dealer Profitability Training.

Technology Integration and Data Quality

The GL is only as accurate as the data flowing from your DMS. Map every transaction type to the correct accounts and test with sample deals. Use integration logs to catch exceptions quickly. Create a monthly reconciliation between your DMS receivables subledger and the GL control account. Version control your posting rules so changes are documented and auditable.

If you are upgrading tools or connecting new systems, see Dealer Technology Training Education and Buy Here Pay Here Technology Integration Education.

Compliance Touchpoints in Accounting

Accounting intersects with compliance through fee disclosures, payment application rules, notices for charge offs where applicable, and document retention. Ensure your accounting team understands how entries align with your policies and disclosures. Keep a compliance calendar that captures filing deadlines and state specific remittance schedules. Coordinate with your compliance officer to confirm that accounting reports support monitoring and testing.

Build confidence with Buy Here Pay Here Compliance Best Practices, Buy Here Pay Here Regulatory Guidance, and Buy Here Pay Here State Compliance Education.

People, Training, and Role Clarity

Define who prepares, who approves, and who reconciles. Write desk level procedures with screenshots for daily tasks like payment posting, NSF handling, and deferral schedules. Cross train to protect business continuity. Provide refreshers quarterly, and pair new hires with a buddy for the first close cycle so they learn your policy manual in context.

Strengthen your team with Dealer HR Training Education, Dealer Operations Management Training, and Buy Here Pay Here Operations Education.

Sample Month End Close Checklist

Lock the DMS for the month and print required subledger reports
Reconcile cash drawers, deposits, and bank statements to the penny
Accrue interest income and adjust unearned interest and receivables balances
Post recon accruals and relieve units sold from inventory to cost of goods sold
Evaluate allowance for credit losses using static pool or roll rate data
Process charge offs and repossessions per policy with supporting schedules
Reconcile escrow and tax liabilities and prepare remittances
Run variance analysis versus budget and prior year to explain changes

Helpful Internal Links

Related Education Paths

Accounting is most powerful when paired with cross functional skill building. Complete your learning journey with topics that directly impact the books through stronger front end decisions and back end execution.

Buy Here Pay Here Sales Process Training to align deal structure with real payment ability
Buy Here Pay Here Payment Performance Education to lift on time rates and reduce losses
Buy Here Pay Here Capital Strategy Education to match funding with portfolio cash flows

Bootstrap FAQ: Buy Here Pay Here Accounting

Use a structure that separates inventory, recon, sales margin, unearned interest, interest receivable, principal receivable, fees, escrow liabilities, allowance for credit losses, charge offs, and recoveries. Map each DMS posting event to specific GL accounts and reconcile monthly. See additional guidance in buy-here-pay-here-operations-training and dealer-accounting-training-education.

Select one accrual method, document it, and apply it consistently. Many dealers use actuarial accrual within the DMS. Others apply effective interest yield for better matching. Reconcile interest receivable and unearned interest to subledger reports each close. Confirm that payment splits in your DMS match your GL rules to prevent drift.

Base your allowance on a documented model using static pool or roll rate analysis by cohort, price tier, or credit band. Update factors monthly and tie your journal entry to a support schedule. Reconcile to portfolio metrics like delinquency and recovery rate to ensure the GL reflects expected loss experience.

At repossession, derecognize the receivable per policy, record the repossessed asset at net realizable value, and track recon on the repo asset. Upon sale, record gain or loss separately. Post post charge off collections to a recovery income account. Keep documentation for audit trails and to support compliance reporting where applicable.

Daily: cash sheet, payment exception report, NSF list, deposit confirmations. Weekly: bank reconciliations, delinquency roll, deferred down balances, audit trail of changes, and inventory additions. Monthly: interest accrual, allowance schedule, charge off report, escrow and tax reconciliation, and unit economics summary by cohort.

Where to Continue Your Learning

Keep building your buy here pay here capability with connected topics across operations, risk, and leadership. Visit Home to explore programs, read insights on the Blog, meet the team at Meet Us, and review upcoming learning on Education and Events. For broader dealer development, see Dealer Education Resources and Dealer Industry Insights Education.

This buy here pay here accounting education resource helps you connect the dots from daily transactions to financial statements and, ultimately, to lasting profitability. Use it as the foundation for training new staff, refreshing policies, and aligning leaders around a single version of the truth in your numbers.