Service Charge Accounting: Software Matters

A job description for a service charge accountant can easily run into two pages. It’s a multi-faceted role typically, one that requires a sound knowledge of landlord and tenant legislation and RICS client money rules, a recognised accounting qualification, the ability to communicate financial information to non-financial colleagues/clients, first class attention to detail, the capacity to compromise, and a cool head when dealing with frantic property managers.


Job descriptions for such accountants usually contain a firm prerequisite – and that is experience of using X, Y or Z software. I started to hear noises that this is about to change, so I set about finding out why and how.


Block Management Accounting


In the block management sector where talented, client-facing service charge accountants are in demand, the likes of MRI Qube, Propman, Tramps and Yardi enjoy a large proportion of the accounting software market. However, I regularly hear from industry people that these packages are expensive, over-engineered, complex and often frustrating. This is surprising when you consider how straightforward the concept of service charge is.


Here is a breakdown of the core duties for a client accountant during a standard service charge year:

  • Help the property manager to compile a budget

  • Enter the agreed budget on the appropriate software

  • Issue demands according to the budget

  • Record and monitor, income and expenditure throughout the year

  • Produce budgeted vs. actual expenditure, quarterly

  • Carry out year-end accounting routines ready for an external accountant to verify accounts


'So if the concept of requesting, spending and accounting for service charges is straightforward, why is the software expensive and sophisticated? Why aren't managing agents using Xero, Sage or Quickbooks for their accounting?'

I asked these questions of a firm of service charge accountants, LPS Livingstone and also of a property management software provider, Dwellant, both who work predominantly for managing agents. Here are their responses:


LPS Livingstone


Ronnie Jacob, LPS

You are quite right that the concept of the residential flats service charge is simple. Service charge accounting is an adaptation of normal accounting rules – a budget is a budget, whether for an RMC or an SME.


Magdalena

So why is the software so complex?


LPS

The software that many managing agents use is complex, yes, but you need to remember that for some landlords and managing agents, it needs to cater for the most complex scenarios – including expansive mixed-use developments. Their software needs to serve the needs of the accountants and property managers, residential and commercial.

The established systems are very good; they’re sophisticated, don’t get me wrong. However you need to invest time and money into them from the start to ensure you get the most out of them. Some managing agents delve headlong into one of the leading packages but underestimate the set-up commitment, including time and training costs.


Magdalena

Are there alternative accounting packages, especially for managing agents unable to afford MRI/Qube, Propman, Tramps or Yardi?


LPS

Well yes but remember that to run a managing agent, you need accounting software and task-based software for PMs to manage their portfolios. I am aware of a small number of managing agents that use Sage or other pure accounting software for their service charge accounts record-keeping – and it works. One needs to look at the licence fees and compare.


Magdalena

Other than cost savings, are there advantages to using an off the shelf generic accounting package like Xero or Sage?


LPS

From your point of view as a recruiter, you might have an experienced Xero user on your books who is really interested in service charge accounting…yet they have no experience of the specific packages that your managing agent clients use and therefore are unlikely to get the job. If managing agents begin to use Xero, Sage, Quickbooks etc, the world opens up to them in terms of experience and expertise out there.


Magdalena

What about training on service charge matters? Parachuting a competent bookkeeper into a service charge environment would require training, yes?


LPS

You’re right but I have trained up accountants to understand the basics and nuances of ‘service charge’ in half a working day. We go back to the start of this interview – service charge accounting is inherently straightforward.


Magdalena

What accounting package do you use at LPS?


LPS

We use Xero. It works really well for us and if managing agents started to use Xero too, then we would welcome that. Sage as well … the main generic cloud packages are excellent. That’s not to say we don’t enjoy using the main property management packages. Or give us a paper bag full of receipts and we will deal with it!!


Dwellant


Dave Piggin, Dwellant

I learned how straightforward the concept of service charge was as an RMC director in central London about 12/13 years ago. It’s how I conceived Dwellant actually. At the time, our managing agent was using software that was well past its best before date, then they upgraded to Qube. For a small firm, it was a big investment for them. Our job was to integrate our software with ANY accounting software that managing agents used and until very recently, it was all about the big four.

Magdalena

Did you achieve that accounting integration?


Dwellant

Yes, after a lot of hard work. Dwellant is accounting package neutral. Our software integrates with all the major property management packages.


Magdalena

OK, so you are in a good position to know which is the best accounting software?


Dwellant

I couldn’t possibly comment on the ‘best’, not least as it depends on the managing agent’s individual needs. What I would say is that after decades of using specialist software,

managing agents have come round to the realisation that service charge is simple, so they are looking to intuitive, in-the-cloud software to reflect that simplicity.


Magdalena

And that means the likes of Xero and Sage being used for service charge accounting?


Dwellant

Yes. We have clients using both Xero and Sage, and now Dwellant integrates with them. This gives our customers even more choice, although when Dwellant integrates with Xero or Sage, Dwellant has to do more of the grunt work (e.g. budget schedules and expenditure are entered onto Dwellant) as Xero remains a generic accounting package.


Magdalena

Do you think we will see Sage, Xero and Quickbooks trained accountants and bookkeepers entering the service charge accounting field?


Dwellant

Yes, absolutely. Darwus will find it easier to recruit accounts staff for managing agents. Intelligent accountants can be trained up on the job. It’s their knowledge of Xero/Sage etc that will make them instantly familiar with a managing agent’s software.



It was clear from my interviews with LPS Livingstone and Dwellant that we are seeing an expansion in the number of choices managing agents have when it comes to accounting software with Xero, Sage and others. Yet these packages have not changed at all for service charge accounting – it’s down to Dwellant’s innovation (and no doubt others) that generic accounting packages can be used compliantly and cost-effectively for service charge.

For employers of service charge accountants and the accountants themselves, this is great news. For Darwus, it means placing proficient Xero, Sage and Quickbooks users at block management firms – we have plenty of those looking for new challenges.