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Posted By DavidK34 on 03/04/2023 5:59 PM
We are setting our annual budget. We pretty consistently get about 80% of the money that we assess, and the rest are delinquent accounts that we probably won't collect for a year or two. I realize it is a collections problem that has to be fixed and we are working on it. In the meantime, we need the cash flow to keep us operational. So how do you adjust what income you need for the budget based on your delinquencies? I realize these accounts are in accounts receivable and it is unfair to the paying members to fund the deadbeats. My idea is to increase the dues by a factor of 1 / 0.8 = 1.25 or 25% so that we will bring in enough to fund operations. The line item in the budget would be called "Funding Efficiency" expense or somesuch. Is this legitimate? What say you all? We can't be the only HOA with this dilemma.
Hi David,
We created a line item in our budget called "Bad Debt/Uncollected Debt" - you could call it "Contingency" - as an EXPENSE.
Per your explanation, you could reasonably set that "contingency" line item to reflect 20% of your budget (as long as you can chart that level of non-collections and be very certain that it's a predictable percentage). Then, your operations budget would be "hit" with this expense though no money is lost or spent.
That said, HOA dues collections are rolling.....just because you're 20% under-collected by the end of your fiscal year doesn't mean the "missing" 20% won't be collected in the new year yet your current budget will probably end with folks owing money they play later.
I don't recommend raising dues on account holders who exercise payment diligence. There is a point where the HOA needs to have its proverbial haircut.