Accounts Receivable: What Every HOA Needs to Know

What is Accounts Receivables (AR)

Accounts Receivable (AR) is one of the foundations of effective HOA financial operations. In a traditional business setting, AR refers to the money owed by customers for goods or services that have already been delivered but not paid for yet. It’s essentially money that the business expects to receive from customers in the future. Managing AR effectively is crucial for maintaining cash flow and ensuring the financial health of any organization.

How does AR Differ for an HOA vs. a Traditional business?

While AR operates similarly in both traditional businesses and HOAs, there are a few significant differences. In a traditional business, AR involves invoicing customers for products or services, with payment typically expected within a set time period, such as 30 or 60 days. Businesses often manage many different relationships with potentially different payment terms that can often be negotiated. 

For an HOA, however, AR consists of assessments, dues, or fees owed by the homeowners for the maintenance, upkeep, and services provided by the association. HOA payment terms are a lot more rigid and straightforward than a traditional business. Homeowners often pay a recurring assessment that is due monthly or quarterly. 

Importance of a Collection Policy for an HOA

A Collection Policy documents and formalizes the Accounts Receivable process for an HOA. A clear and effective collection policy is vital for any HOA. Without one, an HOA may struggle with collecting delinquent payments, which can threaten the financial stability of the community. 

A well-structured collection policy helps ensure that homeowners pay on time and that the association can manage its finances efficiently. It also provides a fair and transparent approach to handling late payments, which can prevent misunderstandings and conflict between the HOA board members and homeowners.

Here are 5 Things Your HOA Collection Policy Must Include: 

1. Clear Payment Terms: It is essential that your policy clearly outlines the payment schedule for homeowners. This should include when assessments are due, the methods of payment (e.g., online, check, etc.), and when accounts are considered delinquent. Providing homeowners with clear, upfront expectations can help prevent confusion and delinquency.

   
   

2. Late Fees and Penalties: Establishing a late fee structure is a crucial part of any collection policy. If a homeowner misses a payment deadline, the policy should specify when and how late fees will be assessed. This will encourage timely payments and ensure consistency in how late accounts are handled.

   
   

3. Communication Process & Escalation: A well-defined communication process helps prevent late payments from becoming a more significant issue. The policy should outline how and when the HOA will remind homeowners of their outstanding balances—whether through letters, emails, or phone calls—and specify the steps taken when payments remain overdue.

   
   

4. Payment Plans: Offering flexible payment plans for homeowners who may be facing financial difficulties can be a helpful part of a collection policy. Setting up a reasonable, structured plan that allows them to pay off their balance over time can reduce the likelihood of legal action and maintain good relations between homeowners and the HOA. 

   
   

5. Legal Actions and Liens: If a homeowner continues to ignore collection efforts, the policy should outline the steps the HOA will take, such as sending accounts to collections or placing liens on the property. A clear and consistent process ensures that the HOA can legally enforce payment without becoming overly aggressive.

   
   

Conclusion

A solid collection policy is crucial for any HOA to run an efficient accounts receivable process. By establishing clear payment terms, outlining late fees, maintaining consistent communication, offering payment plans, and knowing when to take legal action, an HOA can significantly improve its accounts receivable management. This not only helps through increasing cash flow and reducing delinquency but also helps maintain positive relationships with homeowners through clear communication and transparent expectations.