I talk with commercial real estate (CRE) property accounting teams almost everyday. One complaint that I hear again and again: tenants regularly miss their rent.
This may be surprisingly to most, but after a couple of years of hearing the same message day in and day and day out, I now understand why. CRE accounting teams just can’t continue to manage their collections process the same way they always have. A process that more often than not, involves a property manager knocking on the door. So how can property accounting teams start to think differently? Here are some insights on how to address this as an organization, how to begin to think about collections differently, and most importantly, to start getting paid on time.
Communication is key, and not just at signing.
Sign a lease, agree to the terms, and off we go. If only it were that simple. With just about every vendor or service provider comes an invoice or bill which requires payment. Real estate is unique. In most cases an annual rent statement goes out by paper with the agreed upon terms and then tenants are left to their own devices to pay. This is one form of communication, once a year that centers on the most important part of the transaction – money. Sure, you can make the case that it’s in the lease, and it is, but tenants simply forget to pay.
TIP: One solution is to send a monthly rental advice notice via email. “Hi – it’s the 25th of the month and your rent is due on the 1st for X amount.” Concise and easy, and you can automate this task. You will be surprised by how many headaches this prevents. Tenants will receive reminders in advance which will minimize delayed payments in the future. Minimal investment, guaranteed return. That simple nudge even pushes some tenants to pay rent early!
Make it easy to pay.
With ever-changing ownership structures come ever-changing bank accounts. It can be hard for a tenant to know exactly where or how you want them to pay. And when you layer that limited communication, tenants are left to guessing on where to send payment and how much to pay. Post-dated checks are no longer realistic and very manual to issue and deposit. As the world becomes more digitally-focussed, tenants now expect self-service payment methods.
TIP: It’s not only self-service payment methods that tenants need, but payment options as well. Make it easy, and give them the tools right at their fingertips. An online tenant portal can help. You can communicate how much and what method of payments are available. Some tenants are willing to set up recurring transactions from their account. Others want the control in their hands to push the payments to you. At the end of the day – make it easy and clear, and ultimately remove any excuses for late payment.
Create visibility into account activity.
You’ve increased communication and made it easier for your tenants to pay, but they have still missed rent. Now what? Some tenants will still be delinquent with their payments and some simply can’t pay. Who is responsible for managing this collections case and dispute? Typically, corporate collections/AR teams hold a monthly call with property managers to review aging receivables. Out comes the manual, static excel spreadsheet report, and the collections process begins, with disconnected sticky notes, phone calls, emails and offline communication. The result? More days pass before the payment is received.
TIP: Assign responsibility and hold parties accountable. A simple and efficient way to do this is to use a cloud-based collaboration tool to ensure all cross functional departments are on the same page, and reduce the time spent trying to collect the funds. If tenants have disputes or property managers are unclear about balances, an online AR solution enables real-time notifications and brings all parties up to speed quickly. In some cases, property managers can also be incentivized for having a smaller aging balance.
One common theme emerges from these insights – improvements to the tenant experience can help CRE accounting teams collect easier and on-time, setting the foundation for healthy cash flow. Automating the receivables process with an online tenant portal that is intuitive and user-friendly can give CRE companies an enhanced experience for tenants and extend the portfolio with future growth and development.