There are plenty of problems you expect to encounter as your hotel management company grows. Falling months behind on billing your own hotels probably isn’t one of them. Yet, at last year’s Lodging Conference, I heard many versions of this exact same problem.
Hotel management companies had successfully grown their portfolios and wanted to keep going, but somewhere along the way, they discovered that they were running months behind on their own receivables, leaving them with aging AR that had quietly climbed into the millions.
So often I see an aging AR balance as the first indicator that something’s going amiss as a portfolio grows. It’s sort of like driving with a check engine light on. You can do it, but you should probably look at what’s going on before you continue. Every time you add a new property, you just end up compounding an underlying issue until, eventually, the processes can’t keep pace with the portfolio and break down.
What I think catches growing hotel management companies by surprise is just how quickly the numbers add up when they find themselves running months behind on their own receivables.
Take a management company with 50-plus hotels that’s running just two months behind on billing. Depending on the portfolio and its management agreements, that could mean roughly $1.2 million sitting in outstanding receivables. Let another month or two go by, and you’re potentially looking at $2 million, $3 million, or more.
While every portfolio is going to be different, I spoke with enough leaders at the Lodging Conference to know that many of them face this hurdle when they expand to 50 or more properties. The underlying issue for them is never the math. It’s attempting to scale a manual process while expecting their accounting teams to somehow keep up with everything else on their plate.
When receivables are constantly delayed by a few months, it’s no longer an accounting problem. It’s a cash-flow problem that you need to solve before you’re able to maintain the growth you’ve worked so hard for.
The knee-jerk reaction for most hotel management companies is to think that they have a collections problem. They’re earning the money. Why aren’t the hotels paying? But this line of thinking often overlooks everything that has to happen before money can be collected.
For many management companies, corporate and property accounting still live in separate systems. The legacy accounting software that hotels have come to rely on wasn’t originally designed to handle the complexities of managing an entire portfolio. So, hotel management companies have been forced to build workarounds between these separate systems.
And those processes often involve a lot of manual work. Pull the revenue numbers. Move them into Excel. Calculate the management fee. Create the invoice. Enter the corresponding bill on the property side. Set up the payment. Then wash and repeat for every hotel in the portfolio.
At 20 hotels, a finance team may be able to handle a manual billing process. At 50, they’re doing more than double the work. At 75 or 100, there’s no way that same team can handle that amount of manual work and still prioritize their other responsibilities. There’s only so much time in the day, and deadlines still have to be met. So billing ends up getting squeezed into the margins of an already overloaded workday.
At the end of the day, getting an invoice out faster isn’t the real goal. Getting the money you’ve already earned into the bank faster is.
We’d never let a hotel wait months to turn earned revenue into available cash. We’d immediately start looking for whatever was slowing the process down. That’s why it’s important to pay attention to that check engine light you’re given when aging AR starts climbing.
Having $2 million sitting in receivables and having $2 million available to the business are two very different things. You can’t hire with money sitting in receivables. You can’t invest it in new technology. You can’t use it to build out the corporate infrastructure you need for what’s next.
It starts with recognizing that you cannot solve an architectural problem by asking an already stretched accounting team to work faster in disconnected systems. You have to eliminate the disconnect itself.
Corporate and property accounting need to live in the same system, with native AR and intercompany functionality connecting the two. Management agreements and fee calculations need to be built into the workflow. And once the invoice is generated, the corresponding transactions should follow automatically.
We can configure the workflow around the way your management company actually bills. From there, HIA can automate the process from invoice creation through journal entries, while your team stays in control of review and approval. And with the REPAY digital payments integration, you can get earned management fees into the bank in just a few clicks. You can see a quick video of the workflow in action here.
If your management company is already seeing the warning signs of a billing process that can’t keep pace with your portfolio, request a demo and we’ll show you what a more scalable approach could look like.
Co-founder and COO
Chip Fritsch, instrumental in overseeing HIA’s daily operations, brings 15+ years of hospitality industry experience to his role. His responsibilities span from product development to business growth strategies and client onboarding. A former full-service hotel General Manager, Chip knows the in-and-outs of hotel operations and that motivates him to develop new products and services to best support hoteliers. The past 7 years have seen Chip immersed in hospitality software where he has been pivotal in helping HIA win the Acumatica Development Award.
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