The number of payments associated with a single property can range from a few utility bills to hundreds of invoices. When you add multiple properties into this mix, what you get is massive potential for risks emanating from errors, missed payments, and duplicate invoices. This results in crippling operational bottlenecks that can strain your cash flow. A 2023 survey noted that 35% of small landlords specifically cited inconsistent payments as a primary issue.
To prevent such errors from arising altogether, it is necessary to leverage professional accounting services for property management companies and incorporate specialized accounts payable practices from the get-go. These practices must have the capacity to match the volume of payable transactions managed and integrate seamlessly within your financial workflow. However, they should do so without disrupting the speed of your existing operations or hindering the crucial relationship between property managers and vendors.
Incorporating such practices requires striking a balance between payables and receivables within the cash flow cycle. To ensure that expenses are approved, coded, and paid promptly without compromising the cash needed for day-to-day operations.
This blog is a list of practices for accounts payable property management to help strike that balance.
Accounts Payable Best Practices for Property Management Companies
Best practices for being on top of accounts payable for a property management company typically depend upon the company’s current portfolio. Because as the scale of companies expands, the practices involved in managing accounts payable must also scale to accommodate the growth. Though, regardless of the scale, the accounts payable property management is based on some of the following practices:
Centralize Invoice Intake
Mandate a single, dedicated address for all vendor submissions to avoid potential lost invoices and eliminate the use of incorrect paper. This will also prevent invoices from sitting in an individual employee’s inbox for too long. By having a centralized invoice channeling system, which can be described as one digital location. The resource dedicated to managing accounts payable has complete visibility. They have the ability to immediately automate tracking and establish a clear audit trail from the moment each item is received until it is reconciled in the near future.
Automate Account Payable Procedures
The fastest and most accurate way to streamline accounts payable is the integration of automated systems to automatically scan, extract data, code, and process routine invoices. The reason this is considered the fastest practice for managing accounts payable is that it results in reducing manual data entry, cutting invoice processing time by over 80%. This is possible because it nearly eliminates human errors. This allows staff to concentrate on handling exceptions and reviewing processes instead of performing simple data entry.
Establish Approval Workflows
Depending on the scale of services of an accounts payable property management company, appropriate multi-level automated approval standards must be implemented. These standards route invoices to the correct property manager or portfolio owner based on specific dollar thresholds, property, or expense type. A good workflow for the approval process entails clear segregation of duties such that the approver is different from the payer. This will help ensure that there are strong internal controls and prevent any fraudulent transactions. Prevents wastage of company resources by trying to correct the wrongs made.
Ensure Accurate Coding
To ensure that the general ledger entries are coded accurately, diligent verification is required. This also guarantees that charges can be allocated to a specific property, unit, or work order at the time of recording. The reason why meticulous attention needs to be given to proper coding when the transactions are recorded is that doing so will eliminate any need for reclassification at the end of the month.
Perform Regular Reconciliations
Reconciling of statements on a monthly/quarterly basis, which helps to ensure that there is a proper matching of the vendor statements with the accounts of the business. This makes it easier to receive all invoices in the correct manner and, therefore, minimizes the risk of errors. In doing so, one will be able to detect any missing invoices or issues with payments, thus preventing double payments and other similar issues.
Utilize Vendor Portals
Through the use of electronic vendor portals, vendors can benefit by making payments easier through the submission, approval, and monitoring of their invoices. The vendor portal facilitates the submission of these invoices without requiring any paperwork. With this approach, there will be an improvement in the communication channels between the vendor and the organization, hence minimizing queries on the status of the payment. Moreover, using the electronic portal, an individual can monitor the entire process of the invoice from submission to payment.
Set Standard Procedures
The assignment of roles and responsibilities related to the invoice process is very critical. It involves the development of SOPs (standard operating procedures), which eliminate uncertainties. The roles and responsibilities must be documented such that the SOPs clearly indicate how invoices should be processed from receipt to payment. In doing so, there is no risk of inconsistency in invoice processes, irrespective of employee turnover in the accounts payable property management.
Audit-Ready Reporting
Ensure that a complete and immutable audit trail is in place to capture all the activities carried out by the user during the entire process. This includes recording from when invoices are received and timestamped at the time of approval to when payments are made. The traceability of each activity makes auditing easier for the organization, as it can track all the activities taking place. It also ensures that all the activities done are accountable since it will be easy for the organization to track which activity was conducted by whom and when.
Optimize Vendor Payments
Make use of the discount available due to early payments to save on expenses and enhance cash flow management. This can be achieved by adopting electronic payment options such as virtual cards and automatic clearing house transactions. These methods help ensure the business saves money on printing and mailing checks, while also preventing cases of fraud. Strategic timing when making the payments ensures that the business enjoys the discounts as well as builds a good relationship with its suppliers.
Monitor Cash Flow
The payables that have not been paid must be reviewed each week to ensure that there is enough money to cover the cost of the properties, servicing debts, and operating costs. By predicting the future cash flow by examining the approved payables, the management will be able to understand the situation better. This will make it easier for the management to determine when to make payments to the vendors.
Key Takeaways
Implementing best practices in accounts payable property management is critical. This is essential to ensure that property management companies remain financially stable and become more efficient. An effective procedure makes sure that any payments that need to be made to vendors and service providers are made on time and without problems. Besides helping property management companies stay current with accounts payable, effective management also maintains good relationships with suppliers and service providers.
This involves regularly auditing accounts payable records to make sure any discrepancies are found and addressed quickly. Maintaining open lines of communication between accountants and various parties involved in accounts payable property management helps to avoid problems from arising. Using real-time tracking technology also helps companies know where payments are at all times.
As a result, all these approaches become very important when it comes to eliminating mistakes, preventing unnecessary delays, and ensuring that everything is transparent during the process. The incorporation of such strategies enables the organization to improve its control over cash flow management. It also enhances financial reporting practices, contributing to its future financial well-being and development.
