10 trust accounting fails that will send your landlords packing

Offering a high level of management service extends to how you deliver transactional reporting to the client, and this doesn't refer to how the funds are transferred or the method in which they receive their statement; it’s the little detail of what’s on the statement that counts the most. 

There is no point in selling your services to your clients and saying how wonderful your agency is if you are not investing the time into getting the accounting correct. Make any one of these 10 mistakes, and you could be sending your clients straight to your competitors: 

1. Transaction reversals showing on statement
2. Double payment of invoices
3. Charging incorrect agency fees
4. Incorrect allocation of expense and revenue
5. Sending incorrect attachments
6. Poor allocation of GST
7. Wrong 'paid to' dates
8. Not holding back funds when requested
9. Taking funds from the wrong client
10. Incorrect bank details

Transaction reversals: This generally happens when the agent makes an entry error in the trust accounting software and then made a subsequent correction. You don’t want these types of mistakes showing up on your owners' statements, and nor should they. Most software will allow you to exclude reversals from the statement. It’s not that you want to hide things from the client, but it’s messy and means that you’re not having to explain why you made a mistake in the first instance. 

Double payment of invoices: Refers to paying the same invoice twice from the same owner ledger. This happens because agents fail to follow a process whereby paid invoices aren't marked as paid and are entered again. Sometimes the creditors send the same invoice twice and it’s not being checked against the client's account. One way to minimise this issue is to create an invoice work flow and invest in a good trust accounting software where the system will inform you of duplicate entries.

Charging incorrect agency fees: This generally means either poor entry of fees when entering the details of the management into the trust accounting software, like charging 8% when you negotiated 7%; or double dipping and charging a client twice for the same service, e.g. double letting fees. Statement previews are a fantastic solution to detecting these kinds of errors before statements are issued. 

Poor allocation of expense/revenue: Improper allocation of expense and revenue generally comes down to laziness. Just remember what you enter today will affect your owners' financial statement for the next year. For example, council rates and water rates are entered as expenses and items like rent and GST are entered as revenues to the client.

Sending incorrect attachments: Picture this – one of your clients receives another of your client's monthly statements and sees that the management fee to the other client is less than what he/she is paying, you can bet that the first client will be shopping around the following day. This can also refer to the attachment of paid invoices that is sent with the client's statement. You have to be super careful to attach the right statement with the right invoices as it can breach the client's privacy.

Poor allocation of GST: Your trust accounting software is equipped with various GST codes for revenue and expenses and it's imperative that the correct allocations are assigned to the right income or expense. For example, GST on rent is different to GST on outgoings. It’s all GST at the end of the day, but is it clear enough to your client so that they can calculate their GST obligations? Regular training and hiring in-depth experience is the key to managing these sorts of entries.

Wrong 'paid to' dates: Relates to management of rental properties. This occasionally can be a result of a system error, however, it is generally caused by poor database entry. Checklists are an excellent way for prevention of this occurrence.

Withholding funds: The client has asked you to hold back funds for a large expense that may be due in the future, however, you've realised after disbursement of funds that you've forgotten to hold back the requested amount. The best way to prevent this is to enter the holdover on receiving the request so that there is no possible way of forgetting. Another method of checking would be to do statement previews as a last-minute check before payment is made to the client.

Taking funds from the wrong client: Refers to paying an invoice from client B’s account when the funds were meant to taken from client A’s ledger account. Super unprofessional when this happens. It can be due to similar client names or similar property addresses. Always match the name on the invoice to the name of the client, or the property address to the address on the invoice. Again, statement previews and attention to detail are crucial for not making these kinds of mistakes. 

Incorrect bank details: This is mostly due to the client not informing the agent of their change of account; but it just shows incompetence and lack of attention to detail when entering numbers. Check, check and re-check again before accepting the bank details as being correct in the software.

If you want to know more about the trust accounting services my company provides, or have any trust-related questions, then please don't hesitate to get in touch: This email address is being protected from spambots. You need JavaScript enabled to view it.