As we start another new year, I would like to present you with a very old, hoary chestnut for your edification: time is money. As I said, not too much original thought required for that one.
However, as we venture forth into the potential eye of the universal credit storm and the inevitable impact it will have on the level of arrears for every housing provider, regardless of how deep some will have their heads buried in the sand, it is worth revisiting this adage. Time, or perhaps more specifically delay, has always been an issue when it comes to collecting revenue. Whether you are a housing provider or pretty much any other kind of enterprise, getting your money in on time is critical to survival. The concept of cash flow and its importance is hard-wired into the culture of every small- to medium-sized enterprise. Unfortunately within the social housing sector, it remains largely an alien concept. I predict that a fuller roll out of universal credit in 2015 will change that.
Another pearl of wisdom: diagnosis is better than cure. This is another way of saying that it is better to be proactive than reactive. Now, it is not my intention to use this article as statement of the most obvious business clichés of the last 50 years, so please bear with me.
Speed of serve
Most income collection in the housing sector is predominantly reactive. By its very definition, that means it is subject to delay. Even Andy Murray’s reaction is subject to delay when returning a serve (apparently about 0.7 seconds), but a delayed reaction nonetheless. It is fair to say that the housing sector’s average reaction time to rent arrears is a bit longer than that. It is also fair to say that there is a direct relationship between the length of that delayed reaction time and the ultimate cost and ongoing level of rent arrears. It’s not like fine wine; it doesn’t improve with age.
The type of arrears where the damaging effect of delayed reaction is best brought into focus for most housing providers is former tenant arrears (FTA). Chasing current arrears is a hard enough challenge, but at least there is the usual leverage that the tenant does actually want to stay in the house. With FTA, that leverage is gone and quite often so is the tenant before anything has been done to collect the outstanding debt. Many times, hand-in-hand with FTA, go ‘chargeable repairs’, or rather repairs that should have been charged for, but usually just get added to the list of non-collectables. Consider your own organisation and the amount of resource that is deployed to collect current arrears and compare that with the amount of time, effort and personnel applied to chasing FTA. This lower priority approach results in a greater delay in contacting the individual tenants, when ironically this is the type of arrears that requires the fastest reaction times.
Good vs. bad payers
So where does all this leave the typical housing provider in the face of universal credit and the notion of being pro-active? Well, if we start by considering the fact that as a sector, on average 70 per cent of tenants have historically had all or some of their rent paid for them directly via housing benefit. This leads to the frightening conclusion that the majority of the sector’s existing rent arrears balances are in fact attributable to their top 30 per cent of paying customers. That may be seen by some as an overstatement of the potential problem presented to housing providers by universal credit, but even allowing for a degree of exaggeration, it does provide some perspective. So, short of a government U-turn on welfare reform and a return to the housing benefit system, which many will be hoping for in the forthcoming general election but is very unlikely to happen regardless of the result, what can be done?
Well, we need to come back to the idea of being proactive and how that can be done practically with regards to rent collections. I use the term ‘practically’ because I have witnessed more than the odd impractical suggestion. Most of those suggestions have tended to be around the idea of simply throwing more people at the problem. In a magazine supplement last year, there were a number of large housing providers lamenting the extra cost of overtime or additional personnel required simply to maintain previous levels of arrears. I recently met with one Scottish landlord whose CEO has insisted that it is everyone’s duty within the organisation to chase outstanding arrears, whenever they have any time to do so.
While I sympathise with his sentiment and applaud his understanding of the importance of the issue, it is hardly a practical solution to have everyone in the organisation trying to do what is, after all, a potentially complex task. The suggestion of more ‘feet on the street’ and getting back to some notion of the ‘good old ways’ is simply redundant thinking. The acid test should simply be that when the cost of collecting an extra pound is more than a pound, then it isn’t worth collecting. I could cite that as the third obvious truism in this piece, if it wasn’t for the fact that many in this sector prefer to ignore it.
Faster collection processes
The answer then must be technology and not any kind of technology, just those that make the collection process quicker. In the current world order where people remain on housing benefit and payments are still being made direct by the government, that means understanding when a case of actual, as opposed to technical, arrears arises and acting on it immediately to establish contact with the tenant.
As most rent is paid weekly, or not in this case, that means speaking to them within five days. Any delay beyond that has typically just doubled the size of the problem. With FTA, there is a compelling argument that if you don’t speak to the ex-tenant within two weeks of them leaving, you are likely to be writing off most, if not all, of that debt. In the new world order of universal credit, the challenge will be to contact tenants before they get the chance to fall into arrears by reminding them that their rent needs to be paid as a priority. Delays in that process could mean they have spent their ‘rent money’ elsewhere.
Any technology that notifies you faster of actual or potential arrears should be investigated. Access to the latest account status for your key housing and rent officers when they manage to talk to tenants with arrears issues, whether that’s at their desk or via a mobile device in the field, is also worth the investment. Finally, the ability to automate contact with your tenants to send the right message at the right time will help accelerate your reaction times and improve your overall collections performance.
John Doyle is the managing director of The Housing Contact Company.
