A Credit Control Policy – keeping a grip on your community scheme’s finances
In this blog, we continue our series on tips for bodies corporate to navigate a financial crisis. (See part I and part II).
As body corporate members, unit owners are legally bound to pay their monthly levies. However, tough economic times can result in homeowners falling into arrears.
Levy shortfalls have a direct impact on the financial management and operational efficiency of a scheme.
When community schemes are under financial strain due to arrear levies, they may be forced to reduce services or postpone maintenance and repairs. This can have a negative impact on property values and residents’ quality of life.
Special levies to cover the deficit would force paying unit owners to subsidise the shortfall created by non-paying owners, which can lead to tension and strained relationships between members of the community scheme. Community schemes may also be forced to take costly and time-consuming legal action to collect the arrear levies.
The executive committee (body corporate, managing agent and/or trustees) are obliged to ensure the financial stability and sustainability of the community scheme. It is therefore important to have effective systems in place for collecting levies and addressing arrear levies. Simply put, a detailed plan is needed and ideally should be put in place before issues occur.
How can bodies corporate reduce arrear levies?
The first step to tackling arrear levies would be the implementation of a robust and efficient Credit Control Policy. This policy would contain a set of rules and procedures designed to regulate the collection of levies and other charges from individual unit owners, as well as the implications (legal process) of non-payment.
The policy may include provisions such as:
- The terms and conditions for payment of levies and other charges, including any penalties for late payment.
- Procedures for handling arrear accounts, such as sending reminders, imposing interest charges, taking legal action, and liability for legal costs.
- The process for dealing with owners who repeatedly fail to pay their levies, such as instituting debt collection procedures or seeking a court order for the sale of the unit. This would include establishing the period of default before handing a non-paying unit owner over to the levy collection attorneys or CSOS.
- Guidelines for the allocation of payments received from owners, such as prioritising outstanding levies over other charges.
- Special arrangements for owners who are experiencing financial difficulties, such as temporary payment plans or hardship relief.
The purpose of a Credit Control Policy is to ensure that all owners contribute their fair share towards the running costs of the scheme; securing the scheme’s financial stability and sustainability.
This document provides detailed information on how the executive committee could implement the Credit Control Policy and includes a free template.
Once the credit control policy has been implemented, these are the steps to follow to efficiently manage such a policy:
- Bodies corporate should monitor payments regularly to ensure that unit owners are adhering to the terms of the policy. This can be done by setting up a system to track payments, sending out reminders for overdue payments, and following up with owners who fail to pay on time.
- Enforce penalties for late payments as outlined in the policy. This may include charging interest on overdue payments or taking legal action against owners who repeatedly fail to pay on time.
- Regularly review and update the credit control policy to ensure that it remains effective. You may need to revise, update the monitoring system, or introduce new penalties for late payments.
By introducing and managing the Credit Control Policy, the executive committee will achieve the objectives outlined in the policy whilst also satisfying their legislative obligations.
At STS we want to see your community scheme thrive. Our solutions are designed to ensure the financial health of your scheme.
