Service charges are the life blood of a Management Company. It is these funds which enable the bills to be paid and the repairs to be done.
Service charges are never welcome, leaseholders are usually keen to keep them down to the lowest possible level, and often defer actually paying them for a while, sometimes a long while
All this is a false economy, but if it becomes custom and practice to adopt these attitudes, you quickly find that funds run low and you are operating on a hand to mouth strategy. You need to create a plan for collecting service charges.
Developing a budget helps you to establish a realistic calculation of the size of the service charge. Without a budget the charge is going to be a guess. Guess too low and you are running out of money, but equally guess too high and the reserves can grow to a level that leaseholders start to question what is being done with this pile of money.
Once you are know what you are collecting, then you need to establish a clear process for informing leaseholders of the charge and making sure it gets collected in a timely manner.
Ensure invoices are produced. It is vital that each leaseholder has a clear account of what is owed, and by when payment is due. In this internet savvy world there are lots of billing/ invoicing systems out there that can be used. These are good for monitoring the process, but not essential. You can create an invoice using a word processor or spreadsheet package. If you are really pushed a handwritten invoice, whilst a little antiquated, would still be acceptable.
PM Property Services ensure the invoice is broken down to show the major funding items, such as ‘management charges’ and ‘long term reserve’. Keep this at a high level, don’t try and replicate the whole budget on an invoice!
How frequently should service charges be collected? This is optional and there is no definitive answer. As a rule of thumb the bigger the bill the harder it will be to collect, and rarely do you need all your cash in one go at the start of the year. As a consequence, the tendency is to bill twice a year or even quarterly. This produces more work for whoever is responsible for collecting the money, but it is usually received with better grace by the leaseholders.
Almost inevitably you will get some leaseholders who want to pay monthly, and provided this is done by standing order or direct debit we would not criticise this. At least you know the money is coming in, though of course be aware that it is not coming in at the rate of a single payment made in response to an invoice, so just check your cash flow.
What do you do about those that do not pay? Inevitably there will be some people who do not pay the invoice in a timely manner. It is most important that you monitor payment and prompt non-payers early. Often it is an oversight, but all too often a small deficit quickly grows into a large deficit and the ability to settle the charges become more and more difficult.
What do we do if someone is still not paying? It is here that the value of having an independent Managing Agent, such as PM Property Services can be at its greatest. Going and asking your neighbour for money can be very sensitive. Will you treat your friend at no.4 in the same manner that you treat that difficult old man in No. 12. An agent will, will you?
For the stubborn non payer you do need an escalating process. A gentle reminder, a firmer letter, a final reminder. Ultimately you must be prepared to take legal action in pursuit of a debt. Again, because of the size of our portfolio, PM Property Services engage a debt management company who have both the skills to enforce effective debt management, while knowing how to keep the right side of the law.
We are often asked what is the ultimate sanction? Well debts can be collected through small claims and options such as bailiffs, but in reality one of the most common approaches used by Management Companies is to approach the mortgage company of the debtor. They do not want things like charges being attached to the property and will often settle the debt and deal with it directly with the mortgage holder. We would argue that there are many steps before ‘going legal’ and usually some sort of staged payment arrangement is the more satisfactory outcome for everyone.
Cheque, cash or electronic transfer? Well, money is money and do not be too fussy how it comes in. However electronic transfers are probably preferable today, and they also leave an electronic footprint on the bank records. Cheques can be a little time consuming if you have to make a special journey to the bank to pay them in, and be very careful there is a proper record of any cash received. It can sometimes prove very tricky to track down and can lead to some difficult situations.
Collecting your service charge is the life blood of your management company, do not fail to have a plan for its collection.