Managers are beginning to see more associations with delinquency rates approaching 20%. The perceptive managers are initiating conversations with their boards to direct focus on the effects of increasing accounts receivable.
Accounts Receivable (AR) reduces an association's cash. When an association's AR is 5% or less, there are usually no problems. However, an alarming number of Associations are experiencing AR in excess of 20%.
What Should a Board Do?
What should a Board do when they are only collecting 80% of the assessments?
First, recognize that the amount of cash available for operations is 20% less than was expected when the budget was approved. There is less cash than was anticipated. If this situation is not addressed, some boards utilize replacement reserve funds to pay normal operating expenses.
Second, ask your professionals for their suggestions. The attorney may be able to suggest revisions in the collection policy that will improve collection success. The auditors can assist the board members in learning to ‘read' the financial reports and notice negative trends. The manager can apply the collective techniques of many other clients to cope with this problem. The board should consider all suggestions.
Third, educate the members of the association. Communicate to the members the high AR and the effect on cash. Let the members know that the board is aware of the problem and the steps it is taking to develop a plan to handle the reduced cash. Invite members to assist the board in resolving this problem. This is a very important step because the next budget may result in substantially increased assessments above the cost of living so the association will have enough funds to maintain the community. The likelihood of acceptance of this budget improves if the members understand the reason for the increase.
Next, review all service contacts for services that are included but not used or not necessary. The goal is to pay only for the services that are essential.
Recognize that the community may have vacant homes. Determine if it's possible to negotiate with the landscaper to cut these lawns when they are on site for their normal cuttings. Ask the attorney to draft a resolution that will allow the association to be reimbursed for the extra cutting cost. Also, notify the trash hauler of the vacant homes and ask for a reduction in the monthly charge. Identify any other expenses that are based on the number of occupied homes in the community to determine potential cost savings.
Review the monthly financial report prepared by your manager and ask questions. If you do not understand the manager's explanation, the accountant or your auditor can assist you. Start thinking about the 2009 budget, which may require a significant increase to get the association back on track.
Finally, remember your board is not the only board experiencing this problem. This problem was not created by the board, but the board must take steps to mitigate the adverse effects on the association.
