Steps to Take to Reduce Bad Debt
Digested from AppFolio
Depending on the type of community you operate, bad debt may be unavoidable. These steps could mitigate the problem.
Whether you like it or not, bad debt is part of the apartment business. You should not fall into the trap of thinking you are going to have a 100-percent recovery rate.
“Setting realistic expectations for recovery helps you develop a fiscally responsible business model, prepares you to educate your owners about an achievable rate of return target and enables you to maintain positive client relationships,” Laurie Lowe writes for AppFolio.
Citing information from The Association of Credit and Collection Professionals (ACA International), Lowe says only one out of every 10 collection accounts were successfully recovered in 2016. If someone had a higher balance, recovery proved even more difficult.
Factors such as economic shifts and local demographics can create barriers to high collection rates. While those factors are out of your control, there are steps, starting with your internal processes, you can take to reduce bad debt.
“Establish benchmarks that signal when an account is ready to go to an outside agency,” Lowe writes. “Send the security deposit disposition within the timeframe required by your state. Then make some attempts to recover the past due balance using in-house staff and technology. However, don’t let past due accounts age without internal efforts. If you don’t have the staff to perform the collection function adequately, or past residents prove elusive and you’ve failed to produce payment, have a procedure in place to promptly send the file to a third-party collections agency or attorney within 30 days.”