Control the controllables when it comes to lettings client accounting
One of the reasons I am told that letting agents continue to run expensive accounting functions in-house is an understandable concern over trust and potentially losing control over the monies they have been charged with looking after.
Only last year we saw the collapse of a well-known outsourced property management business and the true “fall-out” is yet to be fully revealed although it seems likely that there will be significant shortfalls in the accounts and, almost certainly, many people – landlords, tenants and agents, suffering financial loss. Having lost control and visibility of their client accounting, letting agents and property managers were simply reliant on what they were being told and at the mercy of those operating the business. Many had, seemingly, delegated their client accounting and property management business to a third party without undertaking appropriate levels of due diligence on their provider.
The requirement for agents to carry CMP (client money protection) insurance has been mandatory since April 2019 and it currently remains to be seen whether this “backstop” protection will fully cover any shortfalls where an agent has outsourced their client accounting to a third party who fails to operate with the financial probity that they should.
Letting agents and property managers should look to directly retain visibility and control over client and customer monies but, in doing so, may not be looking any further than running expensive, labour-intensive accounting functions that remain prone to human error, place pressures on service delivery, particularly at times of staff shortages, and are often not integrated with other systems or third parties such as the banks and deposit schemes.
Mention of banks also raises the growing issue of undesignated client accounts. Most letting agents and property managers operate a single client account into which, all client money is deposited and, subsequently, distributed. Keeping an accurate and up to date record of every client’s individual funds when managing a huge portfolio is a major issue and to compound this, many of the banks are now threatening to close such accounts unless agents and property managers set up individual accounts for each client. Hugely costly and time consuming. This position is, in my opinion, only likely to become more challenging in the future.
So what do I feel that you should be looking for to improve the efficiency, security, compliance and productivity of your client accounting without overloading your business with unwieldy systems and more people?
Unsurprisingly, I believe it involves using great technology and a fully compliant specialist provider to support and underpin your existing operations. Technology that does the heavy lifting and adds value to the entire process but technology that keeps you, the client agent or property manager, in control at all times.
I would look for an automated and fully compliant, end to end rent management and other payments platform where payments can be facilitated by standing order, direct debit or merchant services so as to best meet the needs of your clients, customers and your business. Crucially the ultimate “sign offs” on payments etc need to rest with the agent or property manager.
A provider should facilitate seamless visibility in the collection and disbursement of funds including rents and deposits and crucially, be fully AML compliant with funds traced through from request to pay out.
I would also look for Designated Landlord Account Management (DLAM) which means every client is assigned their own dedicated client account wallet. This resolves all of the earlier mentioned client account and banking compliance requirements.
Great I hear you say but how do we choose the right system and provider and feel confident it is safe and compliant?
Crucially, look for the appropriate accreditations, namely FCA registration and PSD2 compliance.
The FCA (Financial Conduct Authority) ensures businesses must be authorised or registered in order to carry out certain activities.
Businesses must demonstrate that they meet a range of requirements and these are then supervised to make sure they continue to meet the standards and rules after they are authorised.
The FCA works alongside the Prudential Regulation Authority (PRA), the prudential regulator of around 1,500 banks, building societies, credit unions, insurers and major investment firms.
PSD2 is the main piece of legislation covering payment services across the EU and, whilst we are no longer members of the EU following Brexit, is the benchmark standard for client accounting services.
The FCA has various powers to enforce PSD2 in the UK and to impose penalties and censures for breaches of its rules, and to instigate criminal prosecution.
Working with a provider who is FCA registered and who complies with the PSD2 directive will protect your business.
Cost of course will be another important factor but the time savings, productivity gains, future-proofing and more robust compliance should more than balance out or improve the bottom line when compared with a more manual approach.
Garrett Foxon - Founder - Lettspay
About LettsPay
LettsPay is an automated client account engine that provides letting agents and managers with the solution to the growing compliance issue of undesignated client accounts by creating individual accounts for landlords with their own sort codes and account numbers. All allocations to and from these accounts can be fully automated with payments approved before release.
Registered with the FCA, the LettsPay 24/7 automated platform integrates with a growing number of CRMs and can manage payments to contractors, deposit accounts and HMRC as well as improving arrears management and landlord and tenant communication.
Lettspay recently secured a significant investment from the nutur group and is a trading name of Hanley Payments Ltd.”
Press Contacts:
Garrett Foxon – Founder – garrettfoxon@hanleypayments.com – 03301 333698
Michael Day – PR – msd@integra-ps.com – 07717 295369