“Best Practices” Series:

Combating Tenant Receivables & Bad Debt

By Chris Ledwin

This is the first installment of a series of articles written with the intention of giving our partners the most practical information, technical assistance and management best practices needed to help their projects be successful. We will be discussing topics that are meaningful in our current environment -- some topics will be obvious while others may be hiding a little below the surface. As we currently interface with over 80 different management companies, we look to identify ‘best practices’ and identify emerging trends across our portfolio and communicate these findings in this periodic series of articles.

Tenant Receivables & Bad Debt

The first topic of discussion relates to the increasing levels of tenant receivables and bad debt and discusses some strategies to combat this emerging problem.

A tenant receivable is the amount of past due rent or charges that a resident owes a project. This tenant receivable becomes bad debt once the management company decides that the receivables have become uncollectible to the project, at which time this uncollected rent is ‘expensed’ as a bad debt and ‘written-off’. Usually this happens after the person has moved out of the project or is evicted with the charge remaining on their ledger. 

As we know, Ohio’s economy is under significant stress and the households we serve are most vulnerable. This is most evident in the family projects, as our elderly households typically received regular income in the form of Social Security payments or pensions. Our family households, however, are very vulnerable to job loss, underemployment or price increases. It is our family and permanent supportive housing projects where we find the highest levels of tenant receivables and bad debt. Increasing tenant receivables and bad debt is an issue in all geographic areas in Ohio (rural, small cities, urban areas), but can be even worse in areas where significant job loss and high unemployment has been realized.

Across the OCCH portfolio, bad debt in 2008 averaged $124/unit across our pool of family projects, with tenant receivables at $128/unit.  As such, the economic impact of uncollected rent across our family projects in 2008 was $252/per unit.

Combating Bad Debt

How do you combat this growing problem? Good tenant selection, setting expectations and strong enforcement are the elements that will enable you to reduce receivables and bad debt.

A strong management company will establish strong policies and procedures and rigorously enforce those policies. Start by revisiting your tenant selection plan to verify that the credit requirements are still appropriate for the current marketplace (remember – demand remains strong for affordable housing). Next, be exceedingly clear with residents before they move in as to your expectations as it relates to the due dates for rent, and be very clear as to your policy for rent collection procedures. Finally, execute your rent collection policy by doing exactly what your written policy requires, on the specific day (i.e., late notices on the 5th, eviction notices on the 10th,  etc.). It is imperative that these policies be uniformly and consistently followed for all residents across the project. 

Do you need a sample collection policy? Please contact your OCCH Asset Manager – we can provide a sample collection policy for you to review.