Can your lease accounting software find lease payment mistakes?
Were you under the impression that lease accounting software could only perform accounting calculations and add information to your balance sheet?
It’s true that this is the primary focus of many lease accounting products. However, smart organizations are choosing more comprehensive lease software that’s designed to provide lease administration along with the lease accounting calculations you need for FASB and IFRS compliance.
Why? Because by properly managing leases and auditing lease payments (which are now much more visible to your financial officers and external auditors), you can uncover millions of dollars in hidden waste and overpayments.
Having this capability is an important opportunity for organizations that want to save money on operational expenses. And who doesn’t stand to benefit from saving money?
3 common ways organizations pay too much for leases
Organizations spend a great deal of time and money negotiating leases for real estate and other assets, making sure the terms align with their best interests. Then, after an agreement is completed and signed, it goes into a filing cabinet, never to be seen again.
Bills come in from lessors and get paid by your AP staff. Expenses are incurred and paid for. Meanwhile, how do you know those charges are in line with what you agreed to pay? Very few organizations are checking to make sure they are, because it’s just too time consuming to find the lease and check every bill. (Not to mention trying to understand the contents of the lease once you find it.)
The problem is, the charges are inaccurate more often than you might expect. That’s because the lessors are not checking either. Landlords typically bill every tenant using to same method and leave it to lessees to challenge the charges.
There are countless details and nuances in lease contracts, especially for real estate leases. When no one is checking the bills against the lease details, incorrect charges and overpayments happen frequently. Here are just a few common examples.
1. Paying charges specifically excluded from the lease
With the use of many leased assets, things periodically need to be maintained and repaired. In a leased office space, the AC needs to be serviced, broken plumbing must be repaired, and faulty light fixtures replaced. The same is true for vehicle leases: cars, trucks and construction vehicles need oil changes and repairs.
When you order these repairs and maintenance services, chances are you automatically pay for them. But what if the lease specifies that the landlord or lessor pays for these items?
If you’re not checking, you’ve likely paid for many expenses that were not your responsibility.
2. Paying an inflated share of building expenses
In leased buildings, shared operational expenses (such as utility changes, cleaning costs, or landscaping expenses) commonly get divided among all the tenants in the building. Each tenant pays a percentage determined by the amount of usable space they occupy.
So what happens when there’s a change to the amount of usable space? Maybe the landlord added a new wing to the building. Or, maybe you gave up a portion of the space you were renting when a floor was subdivided. In both cases, your percentage of CAM charges should be reduced.
If your landlord doesn’t adjust your bills and your AP staff automatically pays those incorrect bills, you lose money for the remainder of the lease.
3. Paying for things you didn’t get
When a lease is negotiated, sometimes landlords agree to certain terms you request, such as the first month’s rent free, initial cleaning, or changing the carpet.
Many times, those agreed-upon changes to the landlord’s standard lease never make it into the billing, so you never get your free month’s rent. Or worse, you get charged for things you never received, like cleaning or carpeting.
Find and prevent overpayments with lease audit capabilities
The fact is, it doesn’t matter what’s in your leases if you’re not tracking the details and regularly validating your payments to be sure your lease payments align with the contracts.
When your lease accounting software tracks not only lease payment information (needed for accounting calculations) but also documents all the details of your leases, you have a powerful tool for preventing overpayments.
Here’s how you can do that when you choose lease accounting software (like Visual Lease) that offers lease auditing capabilities.
Validate every payment against the lease
Visual Lease users can automatically validate lease payments BEFORE you pay the wrong amount!
Every time you pay a bill, you’ll enter the charge into the system. When the system is tracking all your lease terms, it can automatically analyze the payment against the lease contract. If the amount doesn’t match what’s expected, you’ll be alerted. You can choose to pay only the expected amount and hold back the differential until you can investigate with the lessor.
Audit payments to flag anomalies
Certain lease payment amounts, such as CAM building expenses, change over time and you may not be able to validate simply by checking against the lease contract. For example, utility charges for one location may suddenly go up. While you may expect utility rates to increase, how can you tell if you’re being overcharged? It’s possible that a new tenant is the building is using more than their share and you’re being charged a percentage of that. Or, there may be an charge for electricity on the weekend because you failed to notify the landlord in advance.
If you’re not looking for these mistakes (on your part or the landlord’s), you’ll never find these opportunities to save big money.
To find them, you’ll need to use your lease accounting software to look for payments that increase beyond an expected range. Visual Lease lets you run a report that flags payment amounts that fall outside your specified tolerances. Then you can follow up with landlords and other lessors to verify the charges, and only pay what you really owe.
Streamlining the process of validating payments makes it much easier to catch the mistakes that slip through your payment processes every day.
Not what you expected from lease accounting software, right?
Request a Visual Lease demo to learn more about how you can save money on leases.