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Click on the term to see a detailed explanation, or
scroll through entire list.
To suggest a Term not found in this Glossary, Use the Form at the bottom
of this page.
BOR-"Balance On Rent"
Number of individual items on rent. RTO's differ in methods of counting BOR.
Most count every individual item. For example: (dresser, mirror, chest,
headboard) would equal 4 BOR. A few consider a "Bedroom Suite" as 1
BOR. Ancillary items such as bed frames, remote controls etc. are not generally
counted as BOR. Back to list
Term
The length of time an item must be rented for ownership. Terms vary
according to several factors.
- Inventory category
- Item cost
- Credit for pre-rented merchandise
- Local competition
18 month (78 week) Terms are still the general rule, although 20 and 24
months are becoming more common. Many RTO's also offer Terms as low as 3 months,
usually on pre-rented merchandise or "specials".
"Term" is also used in rental rate calculations. A simple method
is Cost X Turn / Term = Rental Rate. This calculation is not unique to the RTO
industry. It is used in some form in all Rental/Lease businesses from movies to
cars and bulldozers. Back to list
Turn
Multiples of cost an item will return at the end of it's useful life. Target
"Turn" is also used in the rate calculation above. Turns vary widely
both by category of merchandise and company. Back to list
Run , Run list
The art of making house calls to gain a commitment to pay. In most cases,
customers are not "Run" unless they do not have a phone or have broken
a prior commitment. Run list is a report, usually generated daily and used to
contact customers. Back to list
Agreement
The rental contract. "Agreement" is used rather than
"Contract" for two reasons.
- "Contract" brings to mind a long term commitment,
- The Rental Industry avoids any term that would cause the customer to
believe they are obligated for an extended period. Back to
list
Close Rate or Percent Collected
The amount of rental revenue collected divided by the amount projected had
all customers paid on time. (SMRR/PRR, see below) The number of the day seems to be
92% collected. This varies
widely both in reporting and in practice. Some RTO's count "new money"
in the calculation which tends to inflate the result. Back to
list
New Money
Total of "Initial Payments" for the month. If a customer rents a
TV weekly on the 2nd. Only the "initial payment" made on the 2nd is typically counted as
"new money". Other payments made during the month are considered
"existing rent". This method tends to inflate the % collected above. Back
to list
Initial Payment
Payment made on the day the agreement is written. Back to
list
First Payment
First payment due after initial payment (above) Back to list
First Payment Default-FPD
Occurs when the customer does not pay the first payment on time or within
the defined grace period. FPD's are typically viewed negatively and are picked
up immediately. Back to list
SMRR (pronounced smurr)
Actual Monthly Rental Revenue. Calculated as Total pretax revenue
minus fees. Origin of the term is unclear. Back to list
PRR (pronounce purr)
Projected Rental Revenue. Calculated on the first of each month/week assuming all
customers make all payments during the month, on time. Used to calculate percent
collected. Origin of the term is unclear. Back to list
Re-Instatement Fee
Rent to Own agreements are "service agreements". The Rent to Own
agrees to provide the service on a week to week or month to month basis. The
customer may terminate the agreement at any time without penalty. When a
customer makes a payment, it "renews" the lease for the specified
period. If the payment is not made within the specified grace period, the lease
terminates. The customer must pay a Re-Instatement fee in addition to the
regular payment to renew the lease. This fee is collected to cover cost's
associated with collecting past due rent. This fee varies widely and is
regulated in some states. Average $5.00. Back to list
Grace Period
The specified period after the due date during which a customer may make a
late payment but avoid a re-instatement or late fee. Weekly agreements typically
have 2 day grace periods. Monthly agreements vary widely from 2-15 days. Back
to list
Total Cost
The total dollars paid by the customer including initial payment, rent,
taxes, and fees if all payments are made for the entire term of the agreement. Back
to list
Damage Waiver
A fee paid by the customer (usually a percentage of the
payment) that relieves them of liability should the rental merchandise become
damaged or destroyed. This should not be confused with insurance. Damage Waiver
does not replace the damage or destroyed merchandise, but relieves the customer
from making further payments on merchandise ,for example, destroyed by fire.
Damage Waiver rates vary widely from 5%-15% of the rental rate. There is
typically a minimum Damage Waiver rate that only effects agreements with a low
weekly payment. Back to list
Filing Fee
A fee charged for account setup on a new agreement. Policies and rates vary.
This fee is often waived for existing customers and during promotions. Back
to list
SKIP
A customer who moves, AND takes the rental merchandise with them, without
notifying the Rent to Own. The term "Skip" is overused in the
industry. It is sometimes used to describe a customer who moves, then makes
arrangements with the RTO to pick up their merchandise. This is not a Skip. Skip
does not apply to customers who are picked up and owe past due rent. There are
many types of "High Risk" customers, but only one true Skip. RULE
OF THUMB: If the merchandise is recovered from the place where it was
delivered, the customer may be High Risk, but is not a Skip. Back
to list
"High Risk"
Term used to describe a previous customer who, for various reasons, is
"DNR" (Do Not Re-Rent-see below). Back to list
DNR-Do Not RE-Rent
A customer who has been judged, based on past experience, to be high risk
and not approved for future rentals. Reasons vary from "failure to
return" to large outstanding balance on prior agreements. Back
to list
"Failure to Return"
Failure to return rental merchandise according to the terms of the rental
agreement. Also a legal term. In some states "Failure to Return Rental
Merchandise" is a class C Felony (ie:
MO), depending on the value of the
merchandise (MO is "...over $150). Back to list
Pay period
Customers pay day. Back to list
Payment Cycle
Weekly - Rental Payment due once each week, typically matches customers pay
period.
Bi-Weekly - Rental Payment due every other week, typically matches
customers pay period.
Semi-Monthly - Rental Payment due twice monthly (i.e. 1st and 15th) Often
confused with bi-weekly. Typically matches customers pay period.
Monthly - Rental Payment due once each month. Typically discounted from
the weekly, bi-weekly, or semi-monthly rates. Some RTO's offer heavier
discounts, but most discounts are as a result of considering a monthly payment 4
times a weekly payment instead of the actual 4.33 weeks. Monthly agreements are
the desired type for many reasons. They carry much lower expense ratios than
weekly agreements and tend to last much longer. Back to list
Balance of Agreements
Total remaining Rental Payments for all agreements including fees. Back
to list
Trip Fee
A fee charged to cover the cost of making a trip to a customers home to gain
a commitment or collect rent. Rates vary and some states regulate the maximum
amount. Trip fees average $5.oo. Many RTO's add trip fees, but few actually
collect them. They are generally used as leverage to encourage customers to
notify the RTO in advance if a payment will be late. Back to list
PIF-Paid In Full
Term used to when a customer pays rent for the entire rental term and
ownership is acquired. PIF is sometimes used to describe a "Personal
Information Form", a form filled out by a new customer listing personal
information: Name, address, SSN, personal references, etc. Back
to list
Buyout
Term used to describe a customer who "buys out" an agreement
early. Most Rent to Owns offer early buyout discounts. Discounts vary from
25%-50%. Back to list
Early Buyout Option
A percentage discount on the remaining rental payments. A customer with an
18 month agreement, who has made 10 monthly payments, may "buyout" an
agreement early by paying all 8 remaining rental payments at once, minus the
early buyout discount. Discounts vary from 25%-50% and usually have some
restrictions. These restrictions typically include "lockout periods".
For example; a customer may not exercise the early buyout option during the
first 3 months, or the last 3 months of the agreement. Back to
list
Ten Day Letter
A certified letter sent to a customer who has "Failed to
Return" rental merchandise according to the terms of the rental agreement.
Most jurisdictions (before any prosecution may occur) require a certified letter
be sent to the "renter". The letter must clearly state; the
merchandise to be returned, the consequences of not returning the merchandise,
and the deadline (usually ten days) to return the merchandise or make past due
rental payments. Back to list
Delinquency Dollar Value
The value of all past due rental dollars if the agreements were paid current
as of that day.Back to list
AOR-Agreements
On Rent
Total number of active agreements. Each agreement may contain multiple BOR
Back to list
Agreement Card Close Percentage
The total number of agreements expired by the close of a day of the week divide
by the total number of agreements on rent. This number usually ranges between
8%-15% depending on a store's policy. Similar to Close
Rate, but focuses on number of agreements as opposed to dollars collected.Back to list
Delinquency Dollar Value
Percentage
The relationship of all past due rental dollars divided into the month-end
rental revenue. This is done by taking your last normal close day of the month
against that months rental revenue. Having a percentage between 4-6% is
excellent. Back to list
ARR or AR-Average Rental
Rate per BOR
Normally calculated monthly. The sum of all rental rates (calculated as
monthly) divided by the total BOR. NOTE: I will post highs, lows, and averages
at a later date. Back to list
Deferment
Used to describe "unpaid rent" or "Free Time" that is put into
"deferment". The deferment may be paid at the end of the agreement or,
more commonly, added on to the next payment. For example; Joe's payment is $24.99. Joe only has
$20.00. Payment is taken and due date is advanced. $5.00 is
"deferred" until the next due date. This practice is generally
discouraged because it is easily abused. Most RTO's have a deferment maximum per
account. Back to list
Book Value
Depreciated value. Useful in calculating "cash price" of
previously rented items. Most states will only allow durable goods to be
depreciated over 5 years. This causes problems in Rent to Own where an items
"useful life" may only be 18 months to two years. Check your
jurisdiction but always depreciate merchandise for the shortest term possible.
This helps to avoid having a TV with a "book value" of $150.00 that
can only bring $75.00 cash. Back to list
Idle Inventory
Merchandise (new or used) in your inventory not on rent or in for service. Back to list
Pick up Dollars or Monies owed on an agreement after an agreement has been terminated. Back to list
Cost Recovery
The length of time required to collect rent equal to the "cost" of the
merchandise. Targets range from a low of 4.5 months to 6 months. Also Useful in
setting rental rates for items of low cost. For example: An item costs $100.00,
Using the cost*turn/term method will result in a very low
rental payment. Most RTO's set a minimum rate/month or week. Using the cost
recovery method: Cost*turn/(Cost/target cost recovery)=rate. Back to list
Return on Cost Percentage
The minimum amount to charge per week to return the products cost. Ex. 27"
TV cost $300, you want to return cost in 20 weeks or 5% per week. Your minimum
weekly rate for that product would be $15.00/week or $300 * .05, .04 for 25weeks
@ 12.00/wk. Most rental stores like to recover cost between 20-26 weeks. Back to list
Average Cost of agreement
The total cost of "On Rent" inventory, divided by the number of
agreements. Average is $400. Back to list
Renewal Payment
A Rent to Own agreement (Contract) is simply a short term, self renewing
lease. A customer makes an initial rental payment. The customer may
"renew" the agreement each week by making a "renewal payment. The
customer is under no obligation to renew. If the customer renews for a specified
period, the rented merchandise becomes their property. Back to list
EBITDA
= Revenue -
Expenses (excluding tax, interest, depreciation and amortization)
EBITDA is commonly
used to analyze the profitability between companies and industries because it
eliminates the effects of financing and accounting decisions. For a detailed
explanation CLICK HERE
Back to list
G.A.R.A (GARA)
Gross Average Rate per Agreement
Also called ARR (Average Rental Rate) Total of all pretax rental rates divided
by number of agreements. Back to list
Agreement Expiration
If a rental payment is not paid by close on the due date, the agreement is said
to be Expired. A so called 'grace period' may be extended before a
re-instatement fee is required, but the
agreement expires at close of business on the due date.
Agreement Termination
A rental agreement is in force until it is "Terminated" by one of several
means.
- Payout/Buyout
- Return of the rented merchandise
An agreement can be "Terminated" by either party to the agreement. Back to list
APU
Average Rate per Unit. Total rental revenue divided by the BOR (individual units
on rent) gives the average rate per unit. Usually calculated monthly. Back to list
UOR
Units On Rent. Same definition as BOR. Back to list
Keep Rate
The percentage of agreements in which the customer
maintains possession of the merchandise continuously, making all renewal
payments, until ownership is acquired. Back to list
Depreciation
An expense
recorded to reduce the value of an inventory or other long-term tangible asset.
Depreciation is normally the largest single expense item on a Rent to Own
balance sheet. Some RTO's choose only to depreciate an item while it is on rent.
This can skew results, since idle merchandise has a real cost associated with
it. Since depreciation is a non-cash expense, it increases free cash flow while
decreasing the amount of a company's reported earnings. Back to list
Charge-Off
An inventory
item is 'charged off' by expensing it's remaining book value. This occurs when
an item is lost, stolen, or returned in an un-rentable condition. Most RTO's
carry lost/stolen on the books for a period of 90 days before charging off. Back to list
RED
A red tag is an account that is 7 days or more past due.
Back in the day, the past due breakdown was as follows:
1-4,
5-6,
7+,
Skip,
Stolen
A 1-4 was a green tag
A 5-6 was a yellow tag
An account 7 days plus was a red tag. Back to list
D's
Deliveries. "Our
goal for the week is 30 D's". Back to list
REPLEVIN
Repossession. An action to recover personal property said or claimed to be
unlawfully taken.
Yield
Sometimes referred to as 'Unit Yield'. See APU
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