Buildium: When should you use each type of tenant credit?

There are multiple options when issuing a credit to a tenant in Buildium, and they all have unique features and applications. In this article, we will go over all the different ways you can issue a credit to a tenant in Buildium, how they differ, and the best uses of each in our experience as Buildium Experts.

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Option 1: Issue credit to waive unpaid charges

This option is the simplest and essentially just reverses the charges to a tenant. It is basically the same as deleting a charge, but with the adjustment reflected on the ledger itself. The application of this credit does not result in any changes to the properties financials other than simply reducing accounts receivable. Examples of best use:

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• The owner wants to provide an actual reduction in the amount owed by the tenant
• PM wants the tenant to actually see the reduction in their balance
• Commonly used to waive late fees or fines, or to compensate the tenant for some inconvenience relating to the property itself

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Option 2: Issue credit in exchange for goods or services or to write off unpaid charges

Unlike option 1, this credit does result in an actual change to the GL accounts the credit is applied to. It forces the user to select an expense account to offset the credit. It is essentially the same as receiving a payment as usual from the tenant, but then turning around and paying them as a vendor for a property expense (such as for repairs, supplies, etc), but without the need to actually exchange funds. Examples of best use:

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• PM wants to provide a credit for work done by the tenant on the same property
• Eliminates the need to add the tenant as a “vendor” in the system
• PM wants the tenant to actually see the reduction in their balance but doesn’t want income or expenses understated for management fee calculations or year-end reporting
• Commonly used to compensate tenants for repairs made themselves or reimburse for purchase of supplies on the same property without the need to issue a check
• Best way to expense outstanding lease balances against “bad debt” for accrual-based accounting
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<blog-cta>Have more questions about issuing credits in Buildium? Reach out to us today!<blog-cta>

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Option 3: Issue credit for payments previously deposited

Similar to option 2, this credit does result in an actual change to the GL accounts the credit is applied to. However instead of an expense account it forces the user to select an equity account to offset the credit. It is essentially the same as receiving a payment as usual from the tenant, but then turning around and making a distribution to the owner. When applied to a liability account, it can be viewed as a “conversion” of the owner's existing cash balance to the account the credit is applied to (such as security deposit liability), but without the need to actually exchange funds. Examples of best use are:

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• Applying a property's “opening balance equity” in the bank to management-held tenant liabilities (such as security deposits) when initially setting up a new Buildium database
• Converting owner-held security deposits to management-held without the need to actually exchange funds
• Recording a rent payment made directly to an owner without understating income, 1099s, or management fees

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Option 4: Payment by the management company

There is a 4th tenant credit option that is not exactly a “credit” according to Buildium but is useful in it’s own way, which is the management company actually paying the rent on behalf of the tenant. This would be recorded as a “receive payment” on the lease ledger as usual, but the payment comes from the property manager and is typically reconciled with a real transfer from the PM company’s overhead operating account to the owner trust account. So ultimately there is a deposit of funds in the bank to clear the undeposited payment, but from the PM company instead of the tenant. Examples of best use are:

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• When the credit to the tenant is for work done at a different property with a different owner
• When the PM company would like to bear the cost of the credit rather than the property owner themselves
• On the PM company side, the money out can be recorded as a reduction in management fee income, an increase in subcontractor/labor expense, or against a dedicated expense account (depending on the context and frequency)
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If you need help with tenant credits, lease ledger clean-up, or ongoing bookkeeping services, please reach out to us at info@apmhelp.com. You can also reach out to us on our website or by calling (281) 949-8755!