Client accounting software for letting agents is a whole different ball game from normal office accounting software. Since your business holds client funds in trust, you are rightly subject to more stringent scrutiny.
Landlords and tenants are trusting you with their money. You need to reward that trust by using only the best property management software to manage your agency’s finances.
This practical guide outlines those key differences, and highlights client accounting best practices. Read on to find great tips to get your lettings business fully compliant.
Do I need dedicated client accounts software for lettings?
Whether your agency is regulated or not, using dedicated client accounting software for lettings can make a huge difference to achieving compliance with the relevant Client Money Protection (CMP) regulations.
Since you’re dealing with “client monies”, there is a lot more oversight required to make sure that those funds are not “mis-appropriated”. That’s a fancy word for diddled!
But that’s only part of the picture. It’s not just about dishonest behaviour. An equally important reason for using proper client accounts software is to identify and fix data entry errors at the earliest opportunity. This will prevent scenarios such as paying out money which doesn’t belong to someone, even if that was in good faith.
That can get very messy. And embarrassing. And illegal.
There are rules and constraints in place when it comes to handling client funds that simply don’t apply in the normal business world.
That’s why you need proper, robust client accounting software for your letting agency. It won’t just protect your client funds. It will help protect you from yourself.
“Hold on a second”, I hear you whimper. “This sounds seriously scary and complicated.”
Yes. Indeed it is.
Why does a letting agency actually need a client account?
Ok, let’s rewind. What is a client bank account anyway, and how it is different from an ordinary bank account?
In a normal business, all the funds in the bank account are usually yours. Of course, there will be bills to settle, wages to pay out, and VAT to pass to the tax man. But these are normal operating expenses. In the meantime, the money belongs to the business.
The big difference is that in a letting agency the rent you collect is not actually yours. It is being transferred from the tenant to the landlord, via your bank account. You are acting as the trusted intermediary.
If you go out of business, your clients must be able to get their hands on their money. All funds are “ring-fenced” and this requires precise record-keeping and strict processes to protect them.
Don’t worry, though. If you use robust client accounting software built specifically for letting agents and property managers, this will largely be taken care of for you. You will be guided along the well-trodden roads of best practice. Achieving compliance will become second nature.
In-built system rules will prevent you using funds that belong to someone else. Powerful reports will show you, at a glance, who owns every single penny in the bank account right now.
Can client accounts software apply rent for agents?
Yes, of course. Property management and client accounting are closely interlinked, and you will do both day and daily.
You’re not just looking for client accounting software. You should aim to get property management software with integrated client accounting features.
When you set up tenancies, you should be able to define rent schedules to apply rent whatever way you wish – monthly, weekly, or on random dates as with student rentals.
If tenants are in receipt of housing benefit or Universal Credit, the letting agency software should be able to treat these independently and maintain the appropriate rent balances.
Producing rent statements, tracking rent arrears, and issuing rent reminders are a critical part of property management, and right in the realm of client accounting.
What about recording rent payments from tenants?
That’s a resounding yes as well. That’s the beauty of the integrated property management and client accounting software for letting agents.
When you record a rent receipt from a tenant, that rent will be transferred behind the scenes to the landlord’s ledger, ready for payout. You don’t need need to do any jiggery-pokery to with formulas or calculations. When the rent is paid, the tenant’s rent balance goes down, and the landlord’s property balance goes up. Automatically.
Agents must handle security deposits in line with deposit protection regulations.
Receiving the money from the tenant is only the first step in the process. Property management software without client accounting capability is unlikely to track this as strictly as it should. With strong client accounting features, the deposit is tracked from receipt to its final resting place, in either a dedicated deposit account or with the appropriate protection scheme.
When it comes to returning the deposit, it should give you flexibility to deal with both the standard and non-standard workflows. Did the deposit go straight back to the tenant, or has it been forfeited (partially or in full) to cover rent arrears or damages. This is all standard fare for good letting agency software.
Will it create invoices for property management fees?
Yes, definitely. Tell the software how your letting agency works, and it should take care of the rest.
Property management fees aren’t just regular invoices like those in a standard business accounting software. The property management system actually knows that when rent is received it should apply fees. Well, depending on what your management packages, of course.
One of the most common models is to charge a property management fee as a percentage of rent collected. The system will automatically raise an invoice each time rent is received.
Alternatively, you may apply a regular fixed fee. This will most likely be in line with the rental period, but the best property management software should give you complete control. It should fully support your day-to-day operations without having to reinvent, or even amend, your business model.
Everything in client accounting software for letting agents happens in context. It knows the difference between rent and charges.
Is your letting agency VAT-registered? If so, it must apply VAT and track this separately from your fee revenue for your tax return.
And paying money out of the client account?
Every action that involves money coming into or leaving your client bank accounts must be handled fully by your letting agency’s client accounting software. There should be no gaps.
We’ve already considered rent, deposits, fees, and transfers. Regular payouts to landlords and suppliers need to be just as simple.
Paying rental income to landlords
When rent is received the software should place this automatically on the property ledger for payout, and apply the appropriate management fees. If you need to take manual steps to achieve this, that’s a step of the process that can be forgotten or messed up. The client accounting part of the software should ensure balances are always accurate, and receipts and payouts are handled easily and intuitively.
On pay-out day, or at any time for that matter, you need to know exactly how much you currently hold for landlords in your client account. To complement that, you should be able to easily produce a full statement of landlord balances. You really need be able to see where every penny has come from, and where it has gone.
Many packages go one further by offering value-add features such as login areas for landlords. This brings a whole new level of transparency to landlords, especially nowadays when people are much more involved in their financial interests in real time. Via their login area, landlords may be able see the full status of their account, complete with comprehensive property statements.
Paying suppliers for maintenance jobs
Most letting agents deal with a certain level of maintenance work, coordinating repairs on managed properties.
The typical workflow starts when the tenant reports a maintenance issue to the agency, e.g. a faulty boiler. The agency will first commission a maintenance contractor or supplier to carry out the repairs. When complete, the supplier will issue an invoice for the work. Fairly standard so far.
So how does client accounting change this? Well, ultimately the landlord owes the supplier for the work. Typically the invoice is due from the landlord “care of the agency”. You cannot simply pay the supplier from the client account until you settle the invoice from the available landlord funds. Otherwise you’re using someone else’s money. A good client accounting system simply won’t allow this, keeping you compliant.
Of course, there are other ways of dealing with this if funds aren’t yet available. You could pay it from the office and charge the landlord back, or just absorb the maintenance cost as part of the management package. But the key takeaway is that a proper software package will encourage you away from bad practice, and ideally even enforce this.
Reconcile client bank accounts regularly and easily
It’s impossible to over-state the importance of regular bank account reconciliation when it comes to managing client funds.
There are two aspects to client account reconciliation within a letting agency – bank balances, and ownership of funds.
As with standard business accounting, the bank balance needs careful monitoring. While all business owners watch this from a cashflow perspective, that’s not the purpose of the reconciliation process. The primary reason for regular reconciliation is to identify, and fix, any transactions which have been missed, duplicated, or entered incorrectly.
The second part is particular to client bank accounts. You must be able to fully account for every single penny in your bank account at any time.
- Rent income awaiting payout
- Overpayments from landlords and tenants
- Security deposits awaiting protection, or already protected
- Housing benefit payments not yet allocated to rent
- Invoice payments still due to maintenance contractors
- Your fee revenue awaiting transfer to the office account
Every last penny belongs to someone, and you must know who.
If you are regulated by an accredited body such as ARLA or RICS, this is a strict requirement. Even if you’re not, you should know this anyway. Would you feel happy if some of your funds under management by a third party, e.g. a pension fund, were just “in there somewhere”?
Regular reconciliation leaves no room for either error or diddling.
It’s not only professional, it gives you peace of mind that your processes are working perfectly. You can be confident that the flow of money through your bank accounts is tracked diligently, and that there is nothing untoward.
Your commission revenue in the client account
Naturally, the whole point of being in business as a letting agent or property manager is to make money.
Property management fees are agents’ main income source, but there may be other revenue-generating services which you charge to landlords and tenants (fee bans notwithstanding).
Proper client accounting software ring-fences the various pots of money within the overall bank account. One of these notional buckets contains your agency’s commission revenue.
There is gotcha which is worth mentioning here. It’s a common misconception that just because you have received the rent and charged the management invoice, you can transfer your fee. Not necessarily so, not just yet. You will need to allocate some of the landlord’s funds to pay the fee, before that revenue becomes yours. Most systems will automatically do this in the landlord payout stage, but you should be able to settle your invoice from the landlord’s balance at any stage. Either way, it’s important to be aware that this step is happening behind the scenes.
Lesser letting agency software does not make this distinction. While in the long run the result is the same, be aware that you cannot just transfer money without following the correct process.
Software such as Elevate, with its strict client accounting rules, will simply prevent management revenue transfers until you actually own the money.
Your property management software should give you a crystal-clear overview of each property’s financial position in terms of income, arrears, payments, and balances.
Client accounts software keeps letting agents compliant
It’s not enough to just know the rules and logic behind good client accounting practice. You need to take action and actually BE compliant.
In life, there are lots of things in life we SHOULD do. We understand the reasoning, we recognise that we should do them, but we don’t.
Get plenty of exercise. Ease back on the rich food. Save money for a rainy day.
But we continually fall short of achieving these goals when left to our own devices.
Not so with good client accounting software.
Letting agents are a busy bunch, and it would be very easy to forget things in the day-to-day grind.
The best client accounting software for letting agents will both encourage and enforce good practice.
Systems with strict client accounting rules will simply prevent you from paying out a landlord if the rent hasn’t been received. Computer says no.
Robust client accounts software for letting agents will help get your financial processes streamlined, Client account reconciliation should be so effortless that it can be done daily. Your agency’s management of client funds will be in better shape than ever before.
Is this double-entry client accounting software?
Whoa, steady on there. You’re talking like an accountant now!
More than likely you’ve heard your accountant use that term. Excellent question – it’s the right phrase, in the right context. Great client accounting software for letting agents will use a chart of accounts to track financial transactions through a series of “nominal codes”.
Ok, let me try that again in English.
Accountants and book-keepers use double-entry accounting to safeguard against data entry and calculation errors. Every financial record has two entries (double, get it?), a credit to one account, and a corresponding debit to another.
Double-entry accounting is the signature of robust and powerful client accounting software for letting agents.
Each time rent is charged, money is received, or a landlord is paid their rental income, these double entries are created to track the financial records. These clear movements between nominal codes provide absolute traceability, and enforce watertight checks and balances.
Relax. You don’t have to think about this. In practical terms, you won’t even be aware of it. Just make sure it’s there, then smile and carry on.
Speaking of accounts, what about accountability?
When it comes to money, whether it’s your own or someone else’s in your trust, you need total oversight.
Who did what, when did they do it, and from where?
Insist on a high level of traceability in your property management software. This applies to all activity obviously, but especially anything involving money.
I’m not even talking about dishonesty or fraud, though that is the worst nightmare. Errors happen all the time, but when they do you need to find out who made the mistake, and when. Firstly so that you can rectify it, and likely also so you can nip any poor practice in the bud.
As a bare minimum, your software should allow individual logins, and enforce security best practices such as strong passwords. This offsets any arguments of “it wasn’t me”. Even better to see a detailed activity report for that period with timestamps and IP addresses.
Hopefully you’ll never need it in anger, but make sure it’s there from the outset.
Your property software needs robust client accounting
In summary, your agency’s property management software of choice needs to fulfil three main roles.
- Streamline your interactions with landlords and tenants, CRM-style
- Promptly handle all compliance activities such as certificate renewals
- Strictly track all financial records with dedicated client accounting features.
Does current lettings software tick all three boxes? If not, you’re missing out.
Don’t leave yourself exposed to bad client accounting practices. You need to manage client funds with the care and respect they deserve.
Our Elevate client accounting software for letting agents ticks all three checkboxes.
Sign up for a free 14-day trial, and check out the simple accounting tutorials.