In our last installment we wrote about the Legal/Collections line item. This week we are going to venture through the collections line item which is tightly knit to the Legal/Collections line.
Collections is the line where we book or code monies you collect via third-party agencies. These are monies from accounts whereby you have given up collection efforts and turned them over. If that agency is fortunate enough to collect on that account then (after they take their fee) they send you a check. This is the line where you book that check.
This is another line item where history (while not the best dictate) is the place to look first. Look at a twelve to 24 month history and do some averaging to come up with the number. Or, if you would like to get a little more sophisticated, call the agency and ask them what their success rate (what percentage of accounts are they able to collect from and what on average to they collect) is? Ask them the total amount they are trying to collect on at that moment in time. Add to that, what, on average, you send over in a given month. And, put together a math problem forecasts that amount over the coming twelve months.
Now, here is what I have to say about that last piece. Have you ever heard the saying, “splitting hairs” or the “law of diminishing returns”? It makes no sense to me (and, that is just me) that anyone would take the time to get down to the brass tacks on this line. It’s such a small amount of money and doing the research to get precise is a border-line waste of time.
So work off of averages – if you can.
Your not likely to split hairs over small amounts of money multifamily maniac,