Landlords link with Banks to Smooth Cashflows
Copyright: David Lawson - first published Property Week Sept 2005
The giant US firm GE realised one day that it had more money sitting around than a bank – so it decided to become one. GE Capital is now one of the most powerful finance houses in history. Other giants such as BP and Unilever tot up how much is in the coffers at the end of each day and dump it into the money markets, raising huge amounts. Even the smallest local authority follows this path, as fractions of a per cent extra interest on deposits can earn extra income while council tax payers sleep.
Why don’t landlords do the same? Top names such as Land Securities sweat their huge reserves but most firms are stymied because they don’t even know how much they have in the bank. Money is usually spread between dozens – maybe even thousands - of accounts, each set up for a particular property. The primitive way rents are collected also prevents easy manipulation. Managers have to laboriously check every detail to ensure it is the right amount and goes into the correct account. Occupiers don’t help. They are notorious for not providing every detail, says management software consultant Chris Woodcock. Or they may send a cheque for lots of different buildings in one lump.
It is ironic that a small investor with a single buy-to-let flat can rely on direct debits and go online to check whether the bank has cleared payment. Yet, amazingly, commercial property managers have to go through the laborious process of sending out quarterly demands then handle a flood of posted payments. And landlords are still waiting for online banking. All that checking and processing makes for long hours and extra bums on seats for a few weeks around every quarter - and all at a time when fees are being cut to the bone by demanding clients.
Woodcock believes a new piece of software which automates much of the process may be the solution. Cashfac will be officially launched at next month’s Property Expo in London on October 18th. Trials by a few big names have led one major landlord to boast of already showing a six-figure windfall in the last year. At this stage it is not so much playing the overnight money markets but merely knowing how much cash is in the bank. Rents still disperse into myriad accounts but the software acts as a sort of central hub which can tot up the total amount.
In the past, each account might be earning insignificant amounts of interest, says Woodcock. Managers can now go to a bank with a global figure and negotiate much better returns. Passing this income on to clients puts them in a much better light when negotiating fees. It can also drastically cut costs. Even when payments are on bits of paper, they can be whizzed through faster because the software is linked into banks’ back-office systems. One manager told Woodcock cheques normally went through 28 pairs of hands between occupier and landlord. Now, as long as the details are correct, the process is much slicker.
Potential for savings are also offered on the other side of the process, where managers pay out clients’ money. Contractors providing services ranging from cleaning to refurbishment add immensely to the paper mountain and every invoice requires just as much analysis. First, managers are under orders from the RICS code to ensure there are funds to available in each account to cover invoices. Going overdrawn brings all sorts of indemnity threats. But with a different account for each property, and rents coming in late or sent back because of something as simple as the wrong code on the cheque, even a property owned by the richest landlord may break the rules. Then each invoice has to be initialled and approved – another process that can see paper winging from office to office and sometimes grinding to a halt if one key manager is off on a business trip. Even where money and initials are available, landlords will not know whether they are getting close to the line until accounts are prepared at the end of each quarter. The new system claims to give an almost instant snapshot because it has been integrated closely with banks.
This is why it has taken more than five years for Cashfac to develop from an idea by chief executive Paul Ormrod to a working model. It needed not just approval by managers and landlords but acceptance from the big banks to link straight into their accounting procedures. In the last year several have given their stamp of approval. While they and a few of the industry’s leading managers using the system prefer to wait a little more before going public, this should be the breakthrough Ormrod and Woodcock have been hoping for.
Banks can now use Cashfac as a selling point in an increasingly fierce war for customers. Property management software suppliers may also be persuaded to come on board. They, too, are desperate for ways to win business in a field crowded with rivals. Cashfac – in technical language a ‘straight-through processing technology for integrated management of payments, receipts, client money and finance’ – can be offered as a potential product extension. Perhaps then the multi-billion-pound commercial property market may finally match what is standard for the smallest private residential investor.
Further details: http://www.cashfac.co.uk