The Money-Making, Efficiency-Finding Venn Overlap: the Property Accounts-Payable Team

The Intersection of Estate Management and Property Accounts Payable: Insights and Stories

In this episode of 'That Retail Property Guy,' host Gary Marshall dives deep into the intricate relationship between estate management and property accounts payable from a retailer's viewpoint. Gary shares vivid stories and valuable insights about the significance of this overlap, emphasising the importance of collaboration between accounts payable and asset managers. He discusses the challenges and rewards of forging strong links between these teams, the complexities of property cost management, and the potential financial risks involved. Through real-world examples and a detailed examination of processes, Gary highlights the necessity of strong personal interaction and specialised knowledge within property accounts payable teams. Listeners are encouraged to consider their own teams' efficiencies and effectiveness in managing these crucial functions.

00:00 Introduction to That Retail Property Guy

00:24 The Overlap Between Estate Management and Accounts Payable

01:34 Challenges in Property Accounts and Asset Management

03:43 Comparing Property AP to GNFR

04:42 The Complexities of Property Lease Payments

06:35 The Role of Automation in Property AP

07:16 Dealing with Misallocated Payments

09:47 Understanding Commercial Rent Arrears Recovery (CRAR)

10:53 The Importance of a Competent Property AP Team

13:00 Conclusion and Final Thoughts

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Transcript

0:00

Welcome to That Retail Property Guy with your host Gary Marshall. In each podcast episode, we delve into topics relating to the particular overlap between estate management and accounts payable from the perspective of a retailer as tenant. Sharing stories and insights through Gary's unique lens, we hope you'll be entertained, enlightened, and maybe a little inspired. In another episode, we discussed that overlap between estate management and property accounts, the Venn diagram overlap. My favorite example of this is a client's office, a big expanse across two open plan floors with a buzz of excitement from all the various teams dealing with the aspects of retail, sales of course, and marketing and HR and finance, health and safety, IT, business development, and not forgetting estates or property. Imagine a staircase that rises up through the centre of a floor space. When you reach the top, you can choose or follow the very obvious signs left for accounts and right for property. But my niche interest is in the ven oval overlap at the very top of the stairs. That landing with those sofas and a water cooler and a photocopier is a common landing where both teams connect or at. should connect. A client once joked that I was wearing out the carpet as I journeyed back and forth from one team to another. But we were forging links that yielded substantial rewards, both cash and savings. More on that later. Property accounts and their counterpart, asset managers, should be the ying to the yang, a combination dream team where the sum is greater than the parts. But it's not always so simple. And size matters, especially in resourcing. I've supported in many retail businesses where the estates and property function is handled by a single individual. And in some cases that individual was neither a property aP specialist or an estate management specialist. You guys know who you are and you certainly have my respect. The advantage of course here is that you're hands on. In all the areas, you can make those connections. A disadvantage possibly is that you might not have the right support. You might not have someone to point out the technical and legal obligations, but more on that later. I've also supported in larger organizations where the accounts and property teams are Separate, distinctly separate, in some cases really far apart separate in different geographical locations and time zones. I've worked alongside asset managers who don't know who actually handles their payment transactions and don't liaise with them on a first term basis. I find it disappointing that this relationship isn't important to them, that they see the property accounts payable team as a back office function. And of course I've worked alongside others who really try to engage, but struggle with the challenge of technical process and vocabulary, terrified that the wrong word in an instruction could lead to misallocation. And remember that this is a two way street. The disconnection can be reciprocated. I've supported numerous AP teams who can't see the lease behind the payments, who don't grasp the complexity or the risk if a payment is late. Let's face it. Property AP is a specialist function. It doesn't exist in a vacuum. It fulfills the leasehold obligations, which are embedded in the lease contracts, which themselves are varied and complex and confusing. Property costs are a massive expense to any retail business, whether it's large or small. It has to sell a lot of widgets to cover one pound of rent. And remember that every one pound not wasted goes straight to the bottom line as profit. This speciality is notable, especially when comparing property AP to other standard AP areas like GNFR. And as you all know, GNFR is goods not for resale, and this can cover all the services or products which a business buys and uses to operate. There are obvious distinctions from the outset. Most GNFR procurement deals stipulate that a supplier must quote a pre authorized purchase order number, a PO, on their invoice. No PO, no pay. It simply gets rejected. The PO is often associated to a specific project or a cost area and may be limited in scope or time. expiry date. But it can be the key by which the GNFR AP team match invoices to expected spend. It makes it easy for them. It's not so easy for property AP by comparison to GNFR with its PO numbers. Property leases form a binding contract often with the liability to pay the lease charges on time, whether formally demanded or not. This means a landlord or managing agent doesn't even really have to provide an invoice to allow the tenant to process a rent payment, let alone quote a PO number. That fact surprises a lot of non property whiz kids, especially the auditors, but more on that in another episode. So putting it simply, the lease is the contract which says, pay me. Of course, if the landlord has opted to tax for VAT purposes, he must provide a receipt after payment, but that's another, another thing to be discussed in another episode. You can see how all of this is connected in a very complex web. But here we are. We recognize that a property accounts payable team is a specialized function. They might be a subset of a GNFR department, but they require special training, understanding and skills. It's a complex area and woe betide the business who under resources it. But resourcing is a big cost. I've supported retailers where all of their AP functions get outsourced, this includes property, usually to a location where HR costs are lower. But even in this scenario, the diligent asset manager or estate manager should ensure that the outsourced property AP team Is well trained and finely tuned. That they are recognized and embraced as the other half of the estate's function. Not a disconnected or disinterested back office function who can't see the lease behind the invoice. I'm a strong believer that personal interaction is critical to nurture that dream team, to build the bonds and relationships, to create the knowledge base and the mutual understanding. Step it up, don't dumb it down. For any property AP team, processing all these property transactions takes time and attention to detail. I've supported retail businesses that rely on a property database to help generate those transactions in bulk on time without manually processing invoices. Always assuming the landlord or their agent actually sent one. You remember that you checked that lease obligation to pay whether formally demanded or not. Semi automated payment runs generated by a database are great for the heavy lifting, allowing hundreds or thousands of transactions to be picked and posted in next to no time. But perhaps a downside to automation is the inability to quote the supplier's invoice number back to them with the remittance. It just doesn't get picked up in the automated run. The basic challenge is an assumption by the tenant that their landlord, or their managing agent, will allocate a payment to the item that the tenant intended it for. In my experience, it's not uncommon for the receiving cashier to misallocate funds, whether this is intentional or not remains open to debate. In some cases, that cashier is a robot, looking for automated remittance details, searching for an invoice number which they can match to. If the relevant number isn't obvious, the funds could be posted to a general suspense account, leaving the billed amount showing as still in arrears. So nobody is happy, and that includes the robot. So whose problem is this? Of course, you read the lease and it doesn't give the tenant any specific legal obligations to process invoices, or to quote specific reference numbers, or to provide specific remittance. But if a tenant doesn't help with competent remittance, there is a risk that the supplier won't recognise the receipt. And they may reject it or misallocate it. So the problem boomerangs back to the tenant in the form of a statement of arrears and resolving that statement of arrears takes time. So cost money, even if that cost is hidden. In my opinion, the optimal compromise is to be on time, precise, and communicative. The property AP team should be capable to liaise with the suppliers to ensure accurate and swift allocation. And to deal with any queries that arise. So they need to be cognizant of property lease obligations, of the principles of estate management, of the challenges of late or non payment, including CRA and the threat of a bailiff or worse. Let's clarify the concept. We're all familiar with TV programs where burly collection operatives turn up at someone's door to collect a debt. Can't pay? Take it away. And in some cases, these are sheriffs for the county court, sometimes private enforcement agents. But the common perception is that they are bailiffs. A bailiff turning up at anyone's door is extremely stressful. There's a sense of threat, even though bailiffs shouldn't threaten. There's worry. There's concern. Can I pay? How do I pay? And there's fear. A great sense of urgency. Pay now. So it can be really alarming and unpleasant if this happens in a retail store. Perhaps in front of customers. Perhaps being handled by an assistant manager who doesn't fully understand what powers or authority the bailiff has. Or even if the alleged debt is due. Fortunately for tenants of commercial property, these bailiffs are governed by rules known as CRA, Commercial Rent Arrears Recovery. And note the key word rent, not service charge. CRA rules came into effect in April, 2014. The upside for the tenant occupier is that the bailiff must give seven days notice. They shouldn't just show up. So this gives the occupier seven days to resolve the issue. No stress, no drama. But it doesn't always run smoothly. I recall one occasion where a 7 day letter was sent, but somehow didn't reach the estates or the accounts payable teams, so no action was taken. So after 7 days, the bailiffs showed up, At the store, loud, overbearing, startling the customers, drawing negative attention, demanding payment. And for the client's accounts team, many miles away, it was a challenge to make that payment. Eventually, to resolve the situation, an estate manager ended up making a payment on his personal credit card, coupled with a promise to sort the rest out as soon as possible. So the property AP team doesn't function in a vacuum. They need a competent point of contact within estates who will oversee and guide their function to control quality, ensure consistency, and handle any escalations or cries for support. The property contact needs to be aware of the relevant accounting rules, the regulations, the function, and should act as a bridge or a conduit between property AP and estates. Hands across the Venn overlap and all that. Lots of conversations happening on that landing with the water cooler and the sofas or its virtual equivalent in Teams. We've spoken a lot about property AP teams making payments, but their functions exist beyond just making payments. Property AP teams need to manage supplier relationships, deal with queries about arrears and balances, recover credits, process changes of detail, like suppliers, bank accounts, provide cashflow forecasts, assist with completion statements. Handle service charge adjustments, verify insurance demands, organize business rate payments, and so much more than might be expected of a standard AP team. All of this on one of the biggest spend areas in the retails business. Like I said, woe betide the business who under resources it. Some might jest that the accounts team are merely bean counters, but those beans are incredibly valuable. The personalities and skill sets of a good AP team are often different from the dealmaker's inner states, but they are just as essential. Consider the size and range of your property portfolio. Consider the enormity of your property budget. Imagine the churn of that budget as it is chunked down into quarterly or monthly transactions across multiple GL codes. Now imagine checking and controlling for accuracy, for no gaps or duplications in the periods being invoiced, to ensure to not pay even one day twice. To forecast all of this so the business can plan its activity, organize its cash flow. Look after the pennies and, well, look after the pounds as well. And that leads me to a point for further discussion. How well do you think your teams in estates and AP are at looking after the pennies and the pounds? I've posed this question to numerous retailers, either to the estates team or the accounts team, and been met with a reassuring nod. But in the same way, I've been invited to scratch the surface, revealing millions, yes, millions of pounds that should be profits in the retailer's pocket. But sadly, it's hidden in the landlord's or their agent's coffers, or ring fenced in long forgotten provisions. So, I'd say there's no harm in looking. Loose change down the back of the sofa, a few quid and an old pair of jeans, an unexpected balance in an old bank account, an unnoticed duplication on a neglected credit card statement. These all have scaled up parallels in most retail estates portfolios. Follow the money, you'd be amazed at the margin of possibility. In another episode, we discuss this in more detail. Check out the links below in the show notes. In the meanwhile, I hope you found this interesting and entertaining and join me again soon. Thank you for listening to That Retail Property Guy. Don't forget to explore more episodes and if you have ideas for future topics, feel free to share them below. If you enjoyed the show, please consider leaving a review. Your feedback is greatly appreciated. Be sure to like, share, and subscribe so you can never miss an episode. For more information, visit ThatRetailPropertyGuy. com. Thanks again for tuning in!