Depending on the facts and circumstances in a particular association 3-5% of annual assessment income seems to be the suggested minimum. Is there a percentage that seems reasonable based on other associations in the area? Again, this is not useful for most associations however, it may give an estimate when other methods fail. Is there an average amount that seems to be written off each year? While this is not typical for most associations in some cases you can use bad debt write-off history to base the current year’s estimation. How does a manager and/or Board determine how much to budget for bad debt expense? This is a very subjective process and varies from association to association and from year to year. If the association collects more money than expected this can be adjusted in the following year’s budget or used for other budget line items that fall short. It is recommended that the estimate be conservative – that is, estimate more bad debt rather than less. However, without a budget line item for these monies that may not be collected, the association could find itself in a cash shortfall in the upcoming year. This is done through a budget expense line item titled “Bad Debt Expense”.īudgeting for bad debt expense can be difficult.
Thus, budgeted assessment income needs to be reduced for the amount that potentially will not be collected. However, the reality is that not all unit owners will pay their assessments and all assessment income will not be collected. Thus, if there are 100 units paying $250 per month for twelve months, the assessment income on the budget will be $300,000 (100 x $250 x12). Assessment income in the annual budget assumes that all monies will be collected. There needs to be an understanding for the reason to include bad debt expense in the budget.
0 kommentar(er)
