Tracking Payments from Revenue Contracts

One day shortly, you’ll get an email from your boss that reads, “Are all of our revenue partners paying us the revenue that we expect from them? Are they paying on time?”  You could scramble for weeks to dig up this information while relying on others, or you can get ahead and demonstrate how well you manage your department.  Here’s how to do it.

Generating ancillary revenue in multifamily is nothing new; it’s been done since parking lots and coin-op laundry machines have existed.  What’s new is the growing list of options available to generate revenue.  Storage units, utilities, whole building WiFi, recycling programs, valet services, bike storage, pet rent, and several options related to electric vehicles, to name just a few.  

Researching and negotiating those contracts may feel like the bulk of the work, but who is watching to see if you get paid? Without good contract management and a strategy for auditing revenue, all of your efforts could have been for nothing.  

‍Tracking Revenue Payments: Where to Start

Some revenue contracts have a fixed income, such as renting space on the roof of your building. However, many contracts are still variable, depending on what residents purchase from you or third parties each month.  

Both types of revenue require auditing, but the former is much simpler.  There are a few options for audit and control:

1. Ad hoc - check from time to time but trust that your revenue vendors are paying you. eek!
2. Accounting - put it in your budget as expected revenue and then look at financial statements to identify gaps after the fact
3. Contract Management - list all of your expected revenue sources and expected income in a way that binds the information directly to the properties that are expecting the revenue and the signed contracts themselves.  In effect, a custom tool.

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‍The Problem with Ad Hoc Tracking

We need to move away from ad hoc and/or leaning on accounting teams.  Ad hoc is just another word for “not managed” and expecting our accountants to know the intricacies of every contract that we sign is unreasonable.  Even if accounting teams had enough free time to create outbound invoices for every expected source of revenue, they can’t know what they will be, which makes it impossible to balance debits and credits, so most accountants won’t do it.

‍The Solution: Contract Management

Contract Management is the only acceptable solution. We should approach revenue collection from vendor partners with the same professionalism used to collect rent from residents. Imagine how difficult it would be to manage rent if payments varied based on how much time a resident spent at home. That's the complexity we face with revenue contracts. If generating new revenue is as important as we believe, managing those contracts properly should be a top priority.

Example of Tracking Revenue:

Step 1: Set Expectations.  For every revenue contract, you should record the actual amount expected or a non-empty placeholder.  Here’s a simple example:

Step 2: Import payment records from your other system. This information can come from your accounting department and it looks like a general ledger:

Now, let’s format that accounting data into a table. It’s easier to read, but it doesn’t take long to realize that Pammy paid you in March, but you have no way of knowing if that payment applied to February.

Step 3: Compare Expected Payments vs. Actual Income
This is the critical step where existing processes often fall short:

Vendy McVendorton
Let’s say today is April 1st. Which months are we applying the $4,000 payment to?

• Is it for January and February, with March still pending?
• Or was January missed, and they overpaid for February?
  Without matching income to expectations, you don’t get the full picture.

Revvy McRevenu
It might look good to see a payment every month, but is it the expected amount?

• To understand if the payments are reasonable, you need a trend line and comparisons with other properties to gauge what’s typical.

Pammy McPayme
At first glance, it may seem February was missed, but maybe the accounting team deposited the payment in March.

• Payments need to be allocated based on the accrual method, not the cash method, to accurately identify any missed payments.

Conclusion

Managing revenue contracts effectively is essential for multifamily businesses to ensure they receive the income they expect from various sources. With the growing number of ancillary revenue opportunities, such as WiFi, pet rent, and valet services, it’s more important than ever to track payments accurately and stay on top of contract terms.

Ad hoc tracking and relying solely on accounting departments leave too much room for missed payments and errors. Contract management offers a comprehensive solution, allowing you to set clear expectations, track income against those expectations, and ensure every contract is accounted for. By adopting a contract management strategy, you can streamline payment tracking, reduce the risk of missed revenue, and demonstrate better oversight of your department.

By proactively managing revenue contracts, you’ll have the information you need at your fingertips when your boss asks, “Are all of our revenue partners paying what they should, and are they on time?” With contract management in place, you can confidently say, “Yes.”