Every financial downfall begins with a few seemingly harmless late payments, incorrect books, or past-due invoices. While in the short term, accounting for these invoices doesn’t seem like a great task. But as the past-due books pile up on each other, as a property manager, you might witness how they expose several risks and challenges that can disrupt your business’s financial health and strain relationships with key members of your commercial community.
This article will guide you through a few basic challenges that you might incur while engaging in past-due accounting in property management. We’ll dive into the main risks that can impact the financial and social assets of your company and recommend an excellent alternative that can help you out of this mess. So make sure to stick to the very end!
What Is Past-Due Accounting?
Before we get into the nitty-gritty of past-due accounting for property managers, we first need to identify what this crucial financial activity is and why it is important. As the name suggests, past-due accounting involves tracking and managing payments that a customer owes to a particular business that is overdue. If the customer fails to pay by the specified date, the sum will be considered past due, and it’s doubtful if it’ll be paid in the future. There are various analytical tools that businesses can use to categorise past-due invoices and concoct strategies that can help maintain the business’s financial status. Since this issue transcends numbers on the business’s ledger and impacts its stakeholders and key activities as well, it’s important to have a proper understanding of the risks involved in the process.
What Are The Challenges Or Risks Of Past-Due Accounting?
Hazard to business finances
Let’s get the financial matters out of the way first. Past-due accounting can be quite harmful to the financial status of property management businesses as it can disrupt their cash flows. To continue your operations and cover your maintenance and renovation costs, it’s essential that you are able to receive timely payments from your clients. If your clients keep delaying their payments past their due dates, you might be unable to pay your vendors on time. Having limited cash flow can lead to liquidation of the business if left unchecked.
Furthermore, if you’re consistently unsure about when your clients will follow through with their invoices, it’s highly likely that you won’t be able to keep reliable, up-to-date records or make accurate predictions. Poor cash flow management and not having your finances under control are two of the most common causes of business failure, as we’ll discuss later on.
Additional hurdle in auditing season
When it’s time to navigate through the daunting maze of taxes for your business, past-due accounting can make things unnecessarily difficult. If your clients aren’t paying on time and you’re unable to account for their missteps effectively, you’ll have to deal with a whole lot of paperwork and additional expenses. From penalties for non-compliance to payables outstanding due to limited cash flow, your business will be headed in a downward spiral if you don’t start taking corrective action immediately. Any fines you incur during the auditing process will only hinder your growth further.
Unattractive to investors
Picture this: your property management business is starting to take off, and you’re on the go 24/7 looking for new investors who’d be willing to slide a hefty sum to the business because of its massive potential. Sounds great, right? Now throw in past-due accounting into the mix. No investor is going to be attracted by overdue sums of cash and invoices not yet fulfilled. Even if some investors give your business the benefit of the doubt, it’s hardly likely that they’ll be willing to work as a long-term partner. The reason for that is your inability to follow through on your financial promises, resulting in the erosion of trust in the business. Raising capital and pitching to potential investors need proper financial backing in the form of reliable and updated accounting records.
Gateway for further mistakes
Once you start letting the receipts and invoices pile up, it becomes very difficult to clarify your vision and recognise that a change needs to happen in your financial department. It’s easy to keep adding to that never-ending list of overdue debts, but it’s never going to be helpful. The more you lose track of your finances, the more errors might occur, such as a paid invoice not recorded or taxes not yet filed. You need to make sure that you keep a close eye on everything financial; pricing strategies, debt timings, debt collection, and follow-ups with clients are just the start of the game.
Risk for fraud
This might be a difficult pill for you to swallow, but you need to keep your eyes peeled at all times. Even if you trust your team to work honestly, it never hurts to be extra careful and keep a close check on where the money is going. If your receipts keep piling up and your workplace becomes cluttered both physically and energetically, there will be an increased chance of fraud and embezzlement. It’ll be hard to notice a missing cheque or two of all your books are scattered across the workplace. You need to ensure that you establish strong systems in place so that every member of your team follows a particular process to transfer cheques from clients and balance your statements.
Cause of inaccurate pricing
If you’re unable to record your financial and accounting activities accurately, the effects will eventually translate into what you offer to your customers as well. Not knowing your overhead and variable costs can lead to a poor estimation of the charges you need to pay your vendors and suppliers, further leading to the use of improper pricing strategies. You might be overcharging or undercharging your customers, and unless your invoices are organised properly, you’ll never know who you need to collect payment from and what that sum is.
Leading cause of business failure
The US Small Business Administration estimates that each year, more than 600,000 businesses enter the commercial world, but about 90% of those startups fail over time. The number one reason for this failure can be attributed to poor financial management and improper accounting and record-keeping. Research shows that more than 8 in 10 businesses experience cash flow problems throughout their operational lifetime, with about 82% of all businesses failing with no healthy cash flow to sustain them. If there’s one reason you need to get your property management accounts and finances in order, it’s this one.
What Can You Do About It?
While that all must have been strenuous to hear, the good news is that you can take action today to overcome these risks and challenges! Oftentimes, it’s difficult for property managers to dedicate so much of their time, energy, and resources to work on their financial and accounting departments. In that case, getting in touch with a professional can do wonders for your business.
Allow us to introduce you to Hawk Operations, your one-stop shop for all your accounting and financial needs. Our team works as an extension of your business to provide you with effective and efficient property management bookkeeping, administration, coordination, consultation, and support services. With our highly qualified and experienced team members, you can save time, money, and loads of unnecessary stress during your work. While we handle your books, you can dedicate your time to what’s important to you, be it scaling your business, launching a new scheme, or getting to know your clients better. Our Backbooks and Cleanup services are just what you need so that you can get your accounts sorted out at an affordable hourly rate.
So, what are you waiting for? Head on over to our website here and catch up on some much-needed financial cleansing today. We’re looking forward to hearing from you!
And if you can’t wait to learn more with us about accounting and financial management, check these articles out:
Your Ultimate Guide To Real Estate Accounting Terminology
Fees & Charges: All You Need To Know As A Property Manager
