Students and debt | Debt Awareness Week
27th Mar 2023
Cash flow is the lifeblood of any business. You need money to pay staff, pay suppliers, market your products, invest in the future of your business and much more. If you have good cash flow, you're less likely to need to take on debt in the form of loans.
Lots of factors affect cash flow in property businesses and even businesses with high levels of occupancy, and therefore committed revenue, can fail because they simply run out of cash.
The primary cash flow risks which operators of private rented accommodation face are:
Declining rental market and increased competition
Right now the rental property market is exposed to the risks of a decline in tenancies. This is particularly acute in the student accommodation sector where uncertainties surrounding COVID-19, particularly in relation to demand for university places from international students, means that landlords and operators of student accommodation are seeing:
- fewer bookings for the 2020/21 academic cycle,
- a more cautious approach from those that are booking who are asking for release guarantees in the event that their courses don't start in September, and
- a significant increase in competitive activity since it is highly likely that there will be fewer tenants to go around.
Delayed payments and an increase in defaults
Most businesses have already felt the impact of the COVID-19 pandemic on their receivables. Uncertainty in the early stages of the pandemic in the UK, together with inconsistent messages from universities and private operators across the student accommodation sector in relation to early contract releases, has led to a decline in on-time rental payments and an increase in rental defaults from tenants who have abandoned their term-time accommodation and moved back home. The "perfect storm" ensued as operators had to grapple with, on the one hand, continuing to support their tenants and properties and, on the other, adapting as most of their staff had to work from home.This operational shift leaves many businesses struggling to understand their tenancy and debt positions with, at best, patchy payment information having to be collated from a number of payment sources by hand some weeks after rents were due.
Disproportionate costs
Few businesses these days can afford to be profligate. "Lean" has become the byword for property managers and landlords with typical operating margins in single digits. As the current situation unfolds it is inevitable that businesses will feel even more keenly the need to do more with less. Systems and processes that, hitherto, have been sub-optimal but tolerable will be exposed by the new normality of remote teams, creaky infrastructure and over-complex integrations as simply too costly to continue. Property Management Software that isn't cloud-based will be obsolete. Software companies that profess to offer Software as a Service (SaaS) but demand a 3-year contractual commitment and can only scale their price upwards will lose their relevance. Solutions that don't support businesses in broadening their portfolios, be that combining purpose-built and houses of multiple occupancy, or student and non-student properties, will become expensive legacies.
Property managers and landlords can no longer afford to maintain complex systems that rely on dozens of third-party suppliers to perform their fundamental operations. This is most acutely felt in the spider's web of payment solutions that many legacy solutions have imposed on the market, a tangle that has both increased operational support costs by its complexity, and driven up transaction fees by its fragmentation.
Why integrated payment processing is a necessity
Saving you time
When it comes to payment processing, choice isn't always a good thing. You want to offer your tenants a range of payment options, but you need to be mindful of the best solutions for your cash flow. Many operators have been burned by very high charges from international payment solutions such as WeChat and AliPay, for example. Others have viewed bank transfer as an inexpensive option (ignoring the fees that banks charge to receive individual payments) but realised that tracking payments and reconciling to invoices is a manual task that doesn't scale well and fraught with risk. Direct Debit is popular, but hard to administer. Credit card payments, though near-universal, command a hefty fee and the risk of charge-backs even after a tenant has left. In addition, though your PMS will usually update your payments as successful at the time of payment, it may not be able to reconcile payments with your bank accounts leaving you with another manual process every month.
Saving you money
If your property management software perpetuates the complexity, offering to 'integrate with' a range of payment platforms but leaving you to negotiate individually with each, you might be surprised at how much this is costing your business. Charges for European Credit Card payments are typically 1.5% + 20p per transaction, and for non-European cards can be up to 3% + 20p. Direct Debits typically range from 1% + 20p - 1.5%, and unless tightly integrated with your PMS, can be hard to manage where tenants change rooms, leave early or request flexible payment terms mid-term. International payment options range from 3% to 5% and, again, need to be well integrated to ensure you have timely and accurate data, particularly where payments may take several days to reach your account. A well integrated payment platform should be able to leverage preferential rates with global payment processors and pass those savings onto you as a simple, single rate per transaction.
Improving accuracy
Having your payment solutions tightly integrated in your PMS means your cash flow, accruals and arrears information will be accurate all the time. A well considered payment platform provides your tenants with choices whilst removing the burden of administration from your team. It automates the setup of direct debit rent schedules and ensures that tenants are informed in advance of each payment. If a tenant cancels their direct debit the platform can inform you in real-time so that you can take appropriate action immediately, not a week after the payment has failed. If you agree to restructure future payments for a tenant then your payment platform will automatically reschedule the direct debit mandate. Bank transfers, card payments and international payments can be managed entirely by the platform to ensure that there is never a need to manually reconcile payments with your bank receipts.
Improving customer satisfaction
When your payment platform is tightly integrated with your PMS you can better serve your tenants. Rent schedules can be clearly communicated and direct debits set up and agreed by tenants entirely without staff input. When your platform knows when payments are due it can automatically send advance notice to tenants. When it knows as soon as a direct debit is cancelled it can inform your team and remind the tenant that they need to set up a new mandate. This allows you to have a conversation about potential payment challenges your tenant may have early, not days or weeks after payment was due. When you offer tenants a choice of payment options they can select the one that best suits their needs.
StuRents Operations Platform
The StuRents Operations Platform can help you simplify your cash flow. Our fully integrated payment solution allows you to offer your tenants a range of payment options including direct debit, real-time direct bank transfer via open banking and international money transfers. Our global partnerships allow us to offer some of the lowest rates in the market. StuRents is a true SaaS solution with a range of tiers to suit property managers of all sizes. Our Basic tier is and will always be available free of any subscription charges.
For more information see our Operations Page.
or contact us at onboarding@sturents.com
