B2B Payments

Real Estate Accounts Payable Needs A Renovation: Yardi

In real estate, property management companies have many of the same problems that other verticals face when managing accounts payable. Over-reliance on checks to pay suppliers, and an overall lack of visibility, have shaped the AP department in this market into a defunct process in need of a renovation.

Adding to the challenge are a few pain points that affect the property management and real estate environment more acutely than some other industries, said Akshai Rao, vice president of Yardi, a property management software provider.

“Property management companies have upwards of 3,000 to 5,000 vendors that they are working with at any given time,” Rao said in a recent interview with PYMNTS. According to Yardi data, as many as 95 percent of those vendors send a mere four invoices – or fewer – each month to their property management customers.

But key to understanding where accounts payable friction hits this industry is acknowledging the challenge of duplicate invoices. It’s an issue that Rao noted can be particularly obstructive to property managers’ visibility into spend, as well as to vendors’ own operations. Again citing Yardi data, Rao said as many as 20 percent of invoices received by property management companies’ AP departments are duplicate invoices.

These are issued “because the vendor has no idea if an invoice is going to be paid,” said Rao. “The only recourse a vendor has is to simply send another invoice.”

Like so many issues in accounts payable today, for real estate companies, these challenges are often addressed with manual tools. In a February 2018 report from MRI Software, researchers found that 42 percent of commercial and multifamily real estate owners and operators deploy spreadsheets or paper-based processes in at least one area of the enterprise. More than one-tenth said these manual processes are the only kinds of technology they use.

Besides the obvious risks of relying on spreadsheets, analysts warn that property management companies can run into compliance issues, as spreadsheets are not easily audited. Data entry errors and cybersecurity are key issues, too, MRI Software’s report stated, while spreadsheets and paper also limit companies’ ability to scale up.

The property management and real estate sector has been notoriously slow to adopt electronic payments, particularly in the B2C market, despite renters ranking online billing and payments as top demands. The National Multifamily Housing Council found that individual renters value the ability to pay rent electronically as their most important factor when renting (tied with access to high-speed internet), according to Digital Trends reports last April.

Corporate renters are no different. Renters of office buildings, industrial properties and retail storefronts said the top two service requirements from their property management companies include electronic payments and electronic billing, MRI Software found.

PayLease found in 2016 that most property management companies surveyed already accept online payment options for their tenants. Analysts said that figure is expected to continue to grow.

Yet when it comes to back-office B2B transactions, checks still reign, Rao said.

“While much of the world has moved to electronic payment methods, property management companies in the U.S. still send an enormous amount of checks,” noted Rao.

The dual-edged sword of manual accounts payable means both buyers and suppliers lack visibility into invoice payment statuses. Rao added that this issue threatens the buyer-supplier relationship. While a damaged relationship is bad for any business, in the real estate sector, trust is paramount, as many vendors work on the sites of their clients’ properties.

“It is exceedingly important for property management companies to have confidence that these vendors are who they say they are, because these vendors are often doing work on the properties,” said Rao, adding that vendors are typically pressured to “self-manage” crucial business information like invoice status and remittance addresses. Enhancing vendors’ visibility means drastically cutting down on duplicate invoices in property management companies’ AP departments, Rao noted, while vendors regain trust that their bills will be paid.

Yardi said the industry is improving the digitization and automation of its back-office functions, however, including procure-to-pay technologies. To push electronic payments further in this space, the company recently announced a collaboration with Fifth Third Bank that enables companies to automatically generate a virtual card to pay vendors.

Again, the real estate industry faces similar challenges when it comes to virtual and commercial card adoption, most notably a reluctance among suppliers to accept this payment method. But Rao explained one unique characteristic of the financial services landscape for this industry: Property management companies often have to juggle multiple banking relationships for different properties, making ACH payments a challenge.

ACH payments “still require quite a bit of customization and effort” as a result of those multiple banking relationships, said Rao. Cards can offer a more streamlined payment method, something Rao thinks vendors will appreciate – and something that will help them overcome card adoption barriers.

Another aid to overcoming those barriers? The relationship between buyer and supplier. Rao noted that adequate communication and education for vendors is important, and property management companies that hold effective dialogue with suppliers can aid in this process. Electronic payment adoption then furthers this collaborative spirit.

“When vendors know the status of an invoice or payment, they are far more confident doing business with the property management company,” said Rao. “When the property management company sees a vendor accepting card payments, they implicitly view that vendor with more credibility.”

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