Payments from commercial property management portfolios fall into two main categories: supplier payments and owner payments or remittances.
Normally supplier payments occur first and if there are excess funds left over, owners are paid. Quite frequently, however, owners insist on receiving regular monthly amounts consisting of rental income or a fixed amount to cover their mortgage repayments, leaving the balance of funds in the Agent’s trust account to pay operating expenses or outgoings.
Commercial property managers are ultimately responsible for managing the cashflows in a property and being answerable to the Owner. As such there are various decisions they need to make during a payment run. Some of these decisions include:
- Has the Owner requested to receive a fixed amount, rent only, or can the balance of funds held in trust be paid out?
- If funds are received from a tenant but cannot be clearly identified (sometimes referred to as unallocated) can those funds be used to make payments?
- Should funds be held back to cover management fees?
- Are there any upcoming invoices due in future months that funds need to be held back for?
- Which suppliers’ payments should be prioritised if there are insufficient funds to pay them all. For example, land tax may be a higher priority than a maintenance contractor invoice?
- Have tenants paid any invoices which are directly recovered from them?
- Should net GST received be paid out to the owner?
- Should a buffer or minimum balance of funds be retained in the trust account?
- Have any tenants paid in advance for a future month, in which case, can these funds be released to the owner or only paid out in the following month to ‘smooth’ owner remittances?
As you can see there are a number of considerations or decisions to be made, some of which require experience to make correctly. It is possible, however, for good commercial property management software to be configured to make the decisions on behalf of a Property Manager.
This has the potential to save a tremendous amount of time, reducing a time-consuming, mentally taxing task into a quick, automated procedure. When you consider how often payment runs are done, this increased efficiency is seriously worth considering.
It is important, though, for Property Managers to understand the process and the machine logic that will be automatically applied and for Property Managers to retain ultimate responsibility and control for payments made and be answerable to Owners.
Beware of some software packages that automate the process but offer no transparency in what is being paid. Like a “black box”, giving Property Managers zero control and placing them in a difficult position when trying to explain to Owners.
In summary, before changing procedures or embarking on further automation, understand that the trade-off required in obtaining more efficiency is often in relinquishing some control.
The various advantages of Cirrus8 in regard to payments include:
- It allows for both automated and non-automated approaches to be adopted
- It has a feature called “bank partitioning” which facilitates paying the rent only
- It facilitates the owner contributing to outgoings for vacant units
