When it comes to dues collection, late payments seem more like a common occurrence than early ones. But, should early payments of HOA dues even be encouraged?
Should You Allow Early Payments of HOA Dues?
Members of homeowners associations have an obligation to pay dues to fund the maintenance needs of the community. These dues can cover a variety of expenses, including but not limited to insurance premiums, landscaping, management fees, cleaning services, and security services.
All homeowners must pay these dues regularly, even the members of the HOA board. The fee amount is determined by the HOA board based on the planned annual budget and calculated according to the provisions of the governing documents. Owners must follow a payment schedule — be it monthly, quarterly, or annually. Those who miss the deadline can face penalties in many forms, though it typically involves late fees and assessing liens against the owner’s property.
You have probably heard of late payments and delinquent accounts in homeowners associations. It happens more often than you think. But, what about early payments of HOA dues? Should your HOA allow those? Should you charge a penalty for HOA dues early payments?
Early payments can actually be a good thing for the association. Not only do you get a bigger and more immediate influx of cash, but you also have fewer owners to worry about come collection time. Of course, while you can encourage early payments of HOA dues, you must avoid demanding or requiring it. Keep in mind that your governing documents will have a set deadline for dues payments. As such, even if owners do not pay early but still follow the deadline, you likely have no power to penalize them.
Monthly vs Quarterly vs Annual HOA Dues
Your association’s governing documents should tell you everything you need to know about dues obligations. This includes how often owners have to pay. Some associations allow owners to choose their own terms — monthly, quarterly, or annually. Meanwhile, others have a preferred or set term.
But, what if your association is still deciding on a payment schedule or has plans to amend it? Which option is the best? Let’s take a look at the pros and cons of each style below.
The monthly payment setup is more favorable to members because it allows for smaller budgeting. It is much easier to find $200 in their household budget every month than it is to find a lump sum of $2,400 at the start of the year. After all, many owners are likely salaried employees or are living paycheck to paycheck.
On the association’s side, a monthly payment setup can give you the ability to accelerate payments, provided your governing documents allow it. This way, if a member fails to pay one month, the HOA can accelerate the payments for the remaining months in the year. Your association is not afforded this remedy when it comes to annual collections.
However, this option also has its drawbacks. For one thing, your association will incur more administrative costs, such as the cost of sending out payment notices and account statements. You also need to send out delinquency notices if you have any delinquent owners in your community. From the members’ perspective, monthly payments give way to more late fees because there are more deadlines to miss.
Quarterly or Annual Setup
A major advantage of quarterly or annual payments is that it gives your association more money earlier in the year. This can act as a buffer in case you have delinquent owners. If you do have delinquent owners, annual or quarterly setups provide you with more time to go after them as well. For instance, if a member misses the deadline for a quarterly payment, you have three months before the next HOA payment is due, giving you time to collect.
In addition to this, quarterly or annual payments can also help reduce your administrative expenses. Less frequent payments mean fewer transactions, which means less frequent notices and letters as well as less work for the treasurer.
The downside, though, is that owners tend to have a harder time allocating money for a huge one-time payment. As previously explained, annual setups also don’t allow your association to accelerate payments.
Can You Offer Discounts to Encourage Early Payments for HOA Fees?
Some associations offer discounts to owners who pay their dues ahead of time.
While this can certainly entice more owners to pay earlier, it can also be misconstrued as penalizing those who choose not to or lack the money to do so. Again, this circles back to your association’s governing documents and whether or not your board has the authority to impose such a discount.
Moreover, every owner has to pay a set amount as determined by your budget. Discounting HOA fees early payments would mean your HOA has to collect less than what owners owe. If you choose to raise dues for those who don’t pay early instead, members might complain and claim discrimination. In some states, like Florida, it is even prohibited to offer discounted dues.
Similarly, you should not penalize someone who chooses to pay monthly instead of quarterly or annually if your documents allow monthly payments (and vice versa). Sure, quarterly and annual payments have their benefits, but your governing documents must take precedence. If you wish to only allow quarterly or annual payments instead of monthly payments, amend your documents first.
The Exceptions to the Rule
Monthly payments tend to involve more work, particularly for the treasurers of self-managed HOA boards. These treasurers have to prepare and send more frequent notices as well as make more frequent deposits to the bank.
If your board has a similar problem and would like to charge a fee for those who pay monthly as opposed to quarterly or annually, you may be able to justify the fee if it will cover the cost of processing the payments. Some boards also hire a bookkeeper or accountant to take over this kind of work, and the cost of their salary has to come from somewhere. As with everything else, you must first check your governing documents to see whether you can use this approach.
How to Help Your HOA Treasurer
Self-managed associations typically have a more difficult time with dues collection. You can divide the treasurer’s workload, though, by adopting one or more of the following strategies:
- Assign a co-treasurer to help prepare notices, collect dues, and deposit payments
- Assemble a finance committee to assist the treasurer
- Hire an accountant or bookkeeper
- Hire an HOA manager or management company
- Use an HOA management software
Invest in Good Software
Early payments of HOA dues are great for the association and should be allowed. But, that does not necessarily mean you should actively look for ways to make owners pay ahead of schedule. Sending an encouraging letter may be acceptable, but imposing penalties on those who do not pay early is crossing the line.
Collecting monthly payments and delinquent dues are huge pain points for board treasurers. Easily keep track of your association’s finances with the help of an HOA management software for self-managed associations. Call Condo Manager today at (800) 626-1267 to learn more or contact us online for a free demo.
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