With South African financial experts still concerned about the threat of a global double dip recession, landlords have got to be extra vigilant about keeping a handle on bad debt.
Collecting incoming payments should always be at the top of any landlord's agenda, but with the risk of there still being a fall-out from last year's economic downturn, landlords need to be even more proactive about debt collection.
Landlords and their property managers need to get their hands dirty. First and foremost is accurate and timely reporting that will flag problems early on, giving landlords a chance to take action before the debt starts to gather.
Once landlords or property managers have spotted a problem, it's vital that they act quickly. This generally involves a few tough decisions on whether or not it makes sense to keep the tenant or not.It could be worth looking after long-term, good prospects
If the tenant is an attractive one, that complements the property's tenant mix, and runs a generally sound and sustainable business it is most likely worth nursing them through the tough times to benefit from a longer term gain.
Put a manageable payment plan in place, or be creative about extracting value from the tenant. For instance, retail tenants might be behind in their rent, but will still be marketing their business. Landlords should strike a deal to ensure that their property features prominently in the tenant's marketing campaign. Another good option is to agree that the tenant arranges a promotional event in the shopping centre to help attract new shoppers.
On the other hand, if the tenant is not a particularly desirable one and/or appears to be suffering from deep-rooted and systemic financial woes, it may be better to cut for a landlord to cut their losses before they escalate - within the confines of the lease agreement with that tenant, of course.Other tips include:
- Maintain good communication on both sides of the food chain. If your tenants are struggling to pay their rent, you might find yourself in a position where you can't pay suppliers or your bank. Know who is likely to default so you don't get caught by surprise, and keep your debtors informed of your position so that they remain favourable to you.
- Do take judgement against defaulters, even if they have absconded and it seems highly unlikely you will receive any money in the short term. You may at least recoup your losses in the long-term when the tenant wants to clear their black-listing.
A double dip recession refers to second recession that kicks in after short period of economic growth following an initial recession. At the Fortune-Time-CNN Global Forum held in Cape Town at the end of June, both Trade and Industry Minister Rob Davies and Absa CEO Maria Ramos warned about the risk of debt-laden developed economies slumping again.