Why does one invoice get paid immediately while another gets stalled for weeks?
Every day, hundreds of bills intended for the city’s condos and co-ops arrive at the back offices of property management firms. Delivered in unassuming envelopes, they request payment for goods and services as varied as the buildings themselves. From the price of a new light bulb to a plumber’s fee to the staggering cost of a new roof, the demands that the bills set forth must all be met to keep the wheels turning.
But it’s not easy being a bill. Management firms employ a complex processing system to ensure that vendors are paid correctly. Nevertheless, the room for error is vast. Invoices can get waylaid on the desk of a distracted co-op or condo board member; a check can be cut from the wrong account or, worse, paid to the wrong vendor. In some cases, a building doesn’t have the cash to cover its costs, a predicament that leaves property managers doing a juggling act: holding checks that can wait while paying only the critical ones.
For vendors wondering why one invoice might get paid immediately while another gets stalled for weeks, the curious life of a bill is as much a story about co-ops themselves as it is about banking.
“When you’re generating 10,000 checks a month, anything is possible,” says Alvin Wasserman, director of asset management at Fairfield Properties. “There is no foolproof system and mistakes can be made. But when there are half a dozen eyes looking at every check that goes out for payment, it minimizes the chance for errors.”
All Eyes on Deck
In general, bills fall into two categories: recurring and non-recurring. The vast majority of bills are recurring: they arrive at the same time every month or every quarter and offer few surprises. They cover costs for utilities, insurance, taxes, and mortgage payments. These bills are paid immediately and with little fanfare.
But the process looks very different for a non-recurring bill. These one-off statements – for salt delivery in the winter; for the electrician who fixed faulty wiring in the hallways; or for elevator repairs – require far more oversight from management and the board. This is where the great machine of paying the bills comes to life.
At Orsid Realty, which manages over 100 properties, dozens of non-recurring bills arrive at its Manhattan office daily. Andre Kaplan, the company’s chief financial officer, and Neil Davidowitz, its president, sign between 2,000 and 3,000 checks a week. But long before any check is signed, the invoice begins its circuitous journey to approval.
Here’s how it works: when an invoice arrives with the mail, it is date stamped and placed in a basket. An employee sorts the invoices, makes a copy of the document, and enters the information into the computer system – assigning the bill with a vendor code, invoice number, and building.
The bills are then placed in folders for the property managers to review. Once a week, a property manager takes his folder to his building and sits down with the superintendent to discuss the details. Did the plumber really stay for two hours? Did he really have an assistant with him? Was the problem with the boiler resolved? Is the hourly rate correct?
For many, involving the super and the property manager in the billing process is critical. “Even if it is as innocuous as the recurring exterminator bill, it opens up a dialogue regarding what was done and what needed to be done,” says Steve Greenbaum, director of management at Mark Greenberg Real Estate. “It really makes for much better communication. That way if a client calls, you’ve had that discussion.”
The Board Steps In
If a bill is large enough, a board member must also see it and sometimes sign the check too, adding days or weeks to a process. If the treasurer is traveling, for example, he may not review it until he returns. Or, if the board wants to review bills at its monthly meeting, it could further delay the process. Sometimes, board members receive a PDF of the invoice by e-mail, but in other cases the original is handed to them.
“We encourage boards to sign their own checks because ultimately it’s their property,” says Wasserman of Fairfield, which both owns and manages properties. “It’s their money and if the president and the treasurer sign checks, they know what’s going on at the property. They can see what is happening in the life of the property by the bills that are getting paid.”
Once the bill has been approved, it returns to the billing office where a check is cut. Timing is key. If an invoice arrives on the second day of the month, for example, but the board meets on the first, then the invoice has to wait an entire month just to be approved by the board. And, if the unfortunate invoice makes its way back to the management office a day after the company cuts checks for the week, the process could be delayed even further.
“Sometimes there’s a hang-up in the situation,” says Stuart Halper, a principal at Impact Management. “Some boards are real kooky about this.”
What’s In a Name?
For the most part, the process is a streamlined machine with dozens of employees working in the billing office to make sure the bills are processed and paid correctly. But with scores of apartment buildings and hundreds of vendors, there is always room for error. On occasion, a bill intended for one property is accidentally paid for by its neighbor with a similar street address. In these cases, property managers simply have one building reimburse the other.
But when the wrong vendor is paid – perhaps a check went to Superior Cleaning instead of Superior Plumbing – the resolution is trickier. “It’s a little embarrassing,” says Seth Kobay, president of Majestic Property Management. “Even though it’s going through this four-step process, [accidents have] happened.”
When the wrong vendor is paid – or if the invoice is mistakenly paid twice – the only solution is to call the vendor. At Impact, a contractor was recently paid twice for a $2,000 bill. “We have to be on our toes,” says Halper. “They don’t call us if there are mistakes made [in their favor].”
Sometimes, vendors send improper invoices. They might make a bill out to the property management company or the building address and not the building corporation. Or they send a work order instead of an invoice. Or they don’t include an invoice number. In these cases, property managers return faulty bills, restarting the entire process before it even begins. “Very frequently vendors screw it up,” says Greenbaum. “They get it wrong even when you tell them five times.”
It’s an open secret that many co-op and condo buildings operate on the financial edge. An unusually cold winter can send oil bills through the roof and put a building’s cash flow at risk. Winter is so tough that an invoice that arrives in July has a much better chance of being paid quickly than one that arrives in January when oil bills are cutting into a building’s cash flow.
But other problems can also drain finances. An unexpected elevator repair at the beginning of the month before maintenance checks arrive can spell chaos. For the bookkeepers toiling in the back offices, reconciling the bills with the balance sheets is a constant headache.
“A lot of these boards run tight,” says Steve Birbach, chairman of Carlton Management. “They don’t have any fluff in their budget for unexpected capital expenditures.”
Sometimes a vendor will make concessions just to get the business. One contractor recently allowed a Manhattan condo to pay its $200,000 elevator repair bill over a period of two years – without interest – because the building didn’t have the cash to cover the cost. Patience on the part of a vendor can pay off. The city’s property management firms manage scores of buildings and, even if a co-op’s cash flow is tight in the dark days of February, they will continue to bring in maintenance fees to pay their bills. Says Kobay: “It pays to be loyal to some of the vendors, and hopefully they are accommodating.”
Slow as the process may be, it is much faster in the digital age. Before office scanners, PDFs, and smartphones were commonplace, companies used to send urgent bills to board members over fax and wait for a faxed approval to return. Now, companies like Carlton Management scan the incoming invoices and e-mail them to board members for approval. A treasurer can review the document on her iPhone and respond within minutes. Carlton uploads property-related records onto its secure website, so board members can review them online.
Concludes Greenbaum, the manager: “I think people take for granted that these things get done automatically and correctly.”