Cash flow, stupid. One of the key elements of running a condominium is managing its cash flow. Billing and collecting your accounts receivable (A/R) in a timely manner is a key component to healthy cash flow. The condominium needs to have a way to monitor their A/R at least on a monthly basis.
Why do we have A/R? When we do not get payment at the time for condo fees and other ancilliary services, then the owner owes the condo money. When we do not get paid right away, we set up a receivable which is a short term loan to the owner for the next thirty to ninety days.
Giving credit to owners is a privilege granted by the condominium. It is not in the owners bill of rights!
Accounts receivable is the largest or second largest account on most condominiums balance sheets. The account represents all outstanding credit, other monies that need to be collected and obligations such as credits and overpayments. There are many reasons why monitoring accounts receivable is important.
Improve Cash Flow
Accounts receivable is a key element to a condo’s cash flow. Failing to monitor and ensure that the accounts receivable function is efficient will lead to less available cash for the condo’s other activities.
Improve Cash Management
In relation to cash flow, lack of cash on hand will impact a condo’s ability to manage operations. If companies can turn around receivables faster than their payables, positive working capital will result. Poor accounts receivable monitoring can lead to a scenario where payables outpace receivables, forcing you into financing your repairs and maintenance. This adds unnecessary costs to the condo overall.
Deter Bad Debt
Revenue may have been booked, but until a receivable is collected there is the potential that profit and loss will be impacted in the future. The longer receivables are outstanding, the less likely they will be able to be collected. Once a receivable is deemed uncollectable, it is expensed against gross profit. Monitoring accounts receivable and your aging of accounts will help you identify owners that do not pay their bills, preventing possible future bad debt.