Property Accounts Payable - Gatekeepers of Profit

The Vital Role of Accounts Payable in Retail Property Management

In this episode of 'That Retail Property Guy,' host Gary Marshall explores the intertwined roles of estate management & accounts payable (AP) for retailers as tenants. Highlighting the indispensable role of AP as Gatekeepers of Profit in controlling property outgoings, Gary underscores the shared responsibility of asset managers and AP teams. He discusses common pitfalls in property expenditure, the necessity for accurate information and robust processes, and the importance of diligence in financial management. Offering practical anecdotes and insights, Gary emphasizes the need for seamless communication and cooperation to optimize property costs and safeguard the bottom line. He concludes by advocating for proper Gatekeeper training and resource, ensuring the protection and recovery of potential profit losses.

00:00 Introduction to the Podcast

01:16 The Importance of Accounts Payable in Estate Management

02:46 Challenges and Responsibilities of Gatekeepers

04:40 Real-Life Examples and Lessons Learned

06:48 Best Practices for Gatekeepers

11:06 Common Issues and Solutions

17:59 Conclusion and Final Thoughts

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Transcript

0:00

Hello, and 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. Many of the hypothetical discussions in our podcast episodes take place on that landing at the top of the stairs, whether actual or virtual, where the property estate managers interact with the property accounts payable team, maybe some chitchat at the water cooler or the coffee machine catching up and chasing up on those. Can you adjust and have you seen that email from. Estate management doesn't function properly without a dependable accounts payable. The two functions are intertwined whether these are the same person or two desk adjacent colleagues, or two teams separated by thousands of miles and communicating through teams and email. Accounts payable handles many essential tasks for any property Occupier, a smart asset manager recognizes this and develops a close bond because quite frankly, this is where the money is. So let's focus today's discussion on accounts payable, the specialist team of subject matter experts who act as gatekeepers of property expenditure. We can set aside the asset managers pl its and high profile recognition by the CEO for that latest property acquisition or lease renewal at less than budget. Of course, these complex long running and challenging achievements are what the asset management team are all about, but it's not all of what property is about. Yes, there are deals and these tend to get noticed, but there's also the daily and often under saluted responsibility for constantly managing the high value activity of controlling property outgoings. The churn of payments, of credits of allocations, resolution of arrears or disputes or misunderstandings. If the gatekeeper's responsible for property AP take their eye off the ball, the descent into financial chaos is swift. Money gets lost, gets forgotten, gets duplicated, gets misallocate, remains untracked, unchecked, unchased. Or is simply unexpected, the bigger the business, or at least the bigger the sum of rent, service, charge insurance, and other occupational costs, the bigger the propensity for misalignment leading to wasted profit. And let's be quite clear, non-optimized property outgoings are a direct drain on bottom line profit. A business has to sell a lot of widgets and whatnots to clear one pound of profit. So every one pound not wasted. Is pure profit, and this is where estate management and accounts payable share the responsibility for optimization. Smart asset managers exist with one foot in property and another in ap. Bridging that team divide recognizing the likely pitfalls, the opportunities, the pinch points, and the pain points. Likewise, smart account managers and credit controllers see both sides of the balanced equation, recognizing that lease based outgoings represent contractual obligations to landlords. In many cases where background legislation and legal precedents creates a different environment to regular AP items, maybe regular suppliers provide stock or stationary. They negotiate terms of business with the retailer. There is a contract, but generally the retailer has substantial leverage. For property costs, the tenant occupy could often be viewed as the underdog in the contract. So the accounts payable and asset management teams need to join together, work hand in hand to deliver the best possible outcome. Part of the shared responsibility is of course, accurate information The property AP team need. In fact, they deserve the best possible support from the asset management team. Their gatekeeper duties rely on robust data about the contractual lease obligations, accurate records of expected payment obligations, reliable heads up of one-off, or variable obligations. The accounts team can't be blamed for. Gatekeeper fails if the asset manager neglected to update the property records with the latest renewal, rent review, acquisition, or disposal undeniably. The asset manager needs to own that update. They negotiated the deal. They should understand the financial consequences. They should ensure the new dates and the values line up. No gaps, no duplicated days. Many years ago, I was outraged to witness an asset manager just dumping a mass of documents on an AP colleague's desk and saying, do the necessary. No further advice or instructions. Simply expecting them to read everything, piece the deal together like a forensic jigsaw, to understand each nuance, to set aside the irrelevant data to conclude what should be paid to whom and when, and whether with or without VAT, the asset manager had no idea what the necessary entailed. And when I then supported the AP colleague. In reviewing that bundle of red tape, it became clear that there were gaps. Absences of conclusion, lack of reasoning, misunderstanding about money in and money out. That failure to connect the two aspects of the property function has stayed with me. As a salutary example, the asset manager had just bailed on their obligations with no input or ownership of the subsequent necessary. This is more like burning bridges than building them. Of course, an asset management team should be confident that the ongoing financial side is in good hands. The AP team are the gatekeepers of property costs. They guard against mismanagement of six, seven, or eight figure budgets. They carry a weighty responsibility. We should never assume it's easy or that any fool can do it. The gatekeepers should demonstrate their subject matter expertise, their competence, their retained team, learning their robust processes, their diligence and vigilance property. AP is a specialist role. Experience is key. The practices and skills aren't cross transferrable on day one. Newbies are always at risk, so supervision is paramount and even subject matter experts can make mistakes. It's the gatekeeper's role and responsibility to check and validate every application for payment, invoice, credit note, arrear statement, VAT receipt, testing all of this against the aforementioned estate's data. Is it the right landlord, the right supplier, the right agent, the right property address, the right value, date range, VA status. So let's head back to Gatekeeper Bootcamp. Many lease based costs are regular, paying the same amount each month or quarter to the same supplier. Whether that's the actual landlord collecting their own income or their appointed managing agent, it can seem almost unchanging. And familiarity can breed contempt. So gatekeepers need to be wary and remain vigilant. No sleeping on duty. They must notice any flawed invoice and resolve it. The absolute base for all checks is that aforementioned estates data. It's a robust checklist, whether in a database or an Excel table or a handwritten journal, the estate management team must take responsibility for maintaining this to never put the accounts team on the back foot. So it should be the asset manager's responsibility to read the lease and the deed of variation and the side letter and the personal concession and so on. Identify the contractual sums due such as rent and the expected due dates and the expected change dates, whether these are fixed rent reviews where the alternate value is already specified, or open reviews where it must be negotiated. Double check if the lease says one thing, but a concession or a side letter says another, maybe allowing a named first tenant to pay rent monthly on the first, even if the lease stays quarterly. Or maybe a lease specifying that rent is payable from day one of the lease, while a side letter grants a rent-free period for the first six months. Summarizing this base data isn't rocket science, but you'd be amazed how often the data gets misinterpreted either by the landlord's agent who read the lease, but not the side letter or the tenant who confuses traditional and modern quarters or English and Scottish quarters. The lease and the subsequent documentation should clearly specify, so read it carefully. It should even be the asset team's obligation to check the VAT status. It might seem more accounts than estates, but the best time to check the VAT credentials of a landlord on a new lease is when the lawyers are completing that lease. Everyone's attention is focused on the legal completion. Make a VAT check part of that. In any new setup for any situation, for any invoice, which includes VAT, be sure that the landlord or their agent has correctly opted to tax. By default, lease costs are generally not subject to vat, but many landlords and agents opt in so they can recover their own VAT expenditure. But the tenant should be sure to see the opt-in document as evidence that that is properly due. I've seen many cases of suppliers adding that because this is set as default in their billing system and the tenant's AP team paying it because it looks so normal and unquestionable, when in fact nobody had presented or asked for the supporting evidence. 20% on top of the rent, potentially unrecoverable and potentially. An embarrassing issue to explain to those nice people from HMRC most, but not all of the primary gatekeeper checks kick in from the billing process. The basic gatekeeper rule is don't let anything passed that can't prove itself. Be alert. I've countless anecdotes of retailer AP teams over the years who failed to notice a flaw because they went invoice blind. That point of repetition or distraction where the pages are turned, but the checks aren't actually being carried out. Chaos and mayhem follow, it's the start of a slippery slope. I've seen countless examples where an AP gatekeeper approved an invoice from the wrong supplier. An invoice for lease cost on a recognized property, right amount, right date range, but not the expected supplier. Some of these cases were fraud, where a scammer passes off as the genuine supplier, but with different bank details, you'd think it couldn't happen. But I've come across cases where the fraudster actually got paid because nobody noticed and nobody asked the right questions. Thankfully, most cases, which seem to be the wrong agent are just genuine data gaps. Maybe the landlord changed a managing agent but hasn't notified the tenant. Or notified them, but the notification got lost in the post. The gatekeeper spots the disconnection, suspends the payment, chases up the missing letters of authority, sets up the new supplier and releases the payment. No drama when it's done properly. Many gatekeeper flags go up for the wrong value. The gatekeeper checks the estate. This data, it's expecting an invoice for 20 K. The invoice isn't 20 k. What's going on? There can be many reasons for a variance to expectation, but it's often just a gap in the estates data. A change that drives an unexpected or reed apportionment. Whatever the reason, the gatekeeper should flag and fix every single occurrence. Never assume, always check it out. AP gatekeepers even need to spot the wrong date range. Maybe the estates data shows monthly periods based on a side letter, but the agent is billing quarterly. Reasonable agents see sense and quickly amend their billing to match the tenant's legal concession. Some agents are stubbornly unwilling to flex on this, which creates a ton of unnecessary work. I've haggled with agents who insist that the concession only mentions the tenant making monthly payments. It doesn't obligate them the agent, but the ongoing challenges of matching monthly payments to quarterly invoices, managing aged debt, and possible arrears. It's all such an unnecessary burden. Let's just get it right. Many AP gatekeepers encounter date range variances when a rent review occurs. Mid billing period. Sometimes the agent's billing system calculates the apportionment. Sometimes they calculate it on paper. Sometimes it's fair. Sometimes it's far from fair. There isn't an industry standard or regulation on how to apportion split periods, but the gatekeeper should apply. Reason and logic, does the date of the rent change match the estates data? Are the before and after values clear and correct? Can you concur that the apportionment by the landlord or their agent is fair and reasonable? Are the days counted correctly? Work it out for yourself. Don't be duped by a managing agent's excel spreadsheet with a flawed formula. A frequent trip hazard is when a lease is approaching its contractual expiry. Maybe the agent's system defaults to invoice only up to the expiry date. Whereas the tenant is still in occupation and is expecting to hold over under the security of tenure provisions of the 1954 Landlord and Tenant Act, and they're willing to keep paying rent, it should be pretty obvious to the gatekeeper what the agent has done. But resolution might require input from Estates and the actual landlord whether or not to keep billing and paying, and whether any holdover payments are accurately allocated. Many years of experience reveals that most variances are not big disasters. They are commonly simple data gaps, which are easy to check out and fix. My business team at Smarter Estates recently helped to resolve an issue where an agent was under billing rent. A fixed rental uplift wasn't in their database, so they failed to invoice it. The tenant's gatekeeper noticed it, but needed help to investigate and explain it back to the agent. You might be tempted to think, well, it's the agent's problem. If they can't invoice correctly, it's their loss. But of course, the lease contract says otherwise, and issues like these can fester and come back to haunt you if left unresolved. What the retailer doesn't want is an unexpected arrears demand several years later. We see lots, really lots of variances for service charge billing. Sometimes the managing agent has unilaterally adopted to round up a periodic charge. It looks cleaner on the invoice, but it varies from what was communicated out with the service charge budget as prescribed by the lease. The gatekeeper should flag anything that fails to match by more than a penny. Does the lease permit the managing agent to Roundup? Does it mean they're actually collecting more than a hundred percent of the due charge from all the tenants? Why should the tenant pay more and wait to get it back later? Is the cost of processing the recovery of the overpayment greater than the value of the overpayment itself? Is this just a sly side hustle for managing agents? Or maybe it turns out the managing agent is invoicing for service charge at a different value because they've updated their system for a new financial year, but somehow that new budget hasn't been advised out to the tenant. This can cause all manner of challenges for the AP team whether to pay anything or nothing, whether to pay the previous known amount or the newly invoiced amount, whether an unseen budget pack might include stuff they shouldn't be paying for at all, so should be disputed. The gatekeeper rule remains constant. If the invoice doesn't match expectation, flag it and check it out. And we constantly urge clients to test for mismatches or variances with incorrect VAT receipts. It seems so easy to see a receipt and think, Hey, no action required, but we urge the gatekeepers to always check them out. Do they actually match a payment? So often flawed receipts are automatically generated by the agent system when their credit controller or the cashier allocate some funds, which were not actually paid out for that purpose. If a gatekeeper spots a VAT receipt indicating that funds have been allocated to service charge, but no search payment has recently been made, then they should immediately ask the question, what on earth has the agent allocated? Maybe they used a service charge year end balancing credit. But the credit note has never arrived. Maybe they mistook rent for lease A, a service charge for lease B, whatever the root cause. The gatekeeper must flag it and fix it, and gatekeeper checks are not limited to the billing process. A common AP gatekeeper task should be the frequent reconciliation of suppliers ledgers, the actual ledgers on behalf of the landlord, not statements of arrears or current balances. My business team sees countless examples that just beg a belief where an agent's internal jugglings, or misallocations, or occasional incompetence mean that their ledger bears no resemblance to the tenant's. Actual history of payments we find undisclosed credits, incorrect invoicing, misapplied payments, receipts, simply forgotten and sidelined into suspense accounts. There's usually a reason, a story, a complication that can be unraveled, and sometimes the resolution is relatively simple. A willingness by the agent to make some corrections can be the first step, but sometimes it's more protracted. Some suppliers struggle to understand. They resist making changes, they drag their feet, but really this is where the money is. In the past few years, my business team has supported clients to recover millions in funds sitting incorrectly on landlord's ledgers, or more commonly on their agent's ledgers. Like we discussed at the start of this episode, this is pure profit due to the tenant agents and landlords shouldn't hang onto it. They shouldn't shroud it in mystery, and they shouldn't obfuscate when they get rumbled. Gatekeepers being diligent can put profit straight back onto the bottom line. So whether your property accounts team use manual checking or AI validation, check every item or manage by exception, pay to invoice or pay to lease. Please consider the weighty responsibility of their gatekeeper activity, ensure they have the right resource and skillset to master the task. Don't leave millions of pounds sitting on the landlord's table. And if you think it couldn't happen to your business, well, so did all our clients. Check out our details at smarterestates.co uk. Details in the show notes the team would be happy to discuss and help with gatekeeper training and processes, gap fill your data and get started on those all important reconciliations. Thanks for tuning in to that retail property guy. Check out more podcast episodes and if you have a suggestion for a future topic, please leave a suggestion or send us a message. If you liked what you heard, please consider leaving a review thanks for listening.