Explain 5 strategies which can be used by a lessor to minimize asset abuse by a lessee

Explain 5 strategies which can be used by a lessor to minimize asset abuse by a lessee


Guest Clauses

The biggest cause of wear and tear on any property is people(Toland and Colwell, 2017).  Constant trampling across the carpeting flattens it and gradually ruins it. Toland and Colwell (2017) adds that more people using an investment property leads to racking up mileage faster. Over my decades as a property manager, I have always conducted walk-through inspections with tenants after they move out. Those rentals with many people living in the unit? Always the heavily damaged ones. And the tenant’s usual line is “It wasn’t me, it was my kids, friends, relatives that caused that wear and tear. But you can’t deduct normal wear and tear from my security deposit anyway, so hand it over.”

How on earth do you handle this as a landlord?

By making sure that you have a strong occupancy clause. Some states and municipalities do have occupancy standards in place but that rarely means anything to a renter. It is mucho importante that you have a strong lease clause that not only specifies how many people will reside in the unit, but also restrict overnight guests to a specific (low) number of nights each month.

Lastly, make sure that your agreement includes these words in as many sections as possible: “Tenant is responsible for the actions, liabilities or damage created by any and all occupants, guests and invitees.”


  1. Utility Responsibility

Murthy and Jack (2014) state that there has to be a clear statement in the lease agreement of who pays the utilities and what happens if these aren’t taken care off. For instance, some multi-units do not have separate metering for water. How are water bills split? Does the landlord pay the bill and then bill each tenant? What if one tenant uses more than another? These are questios that need to be addressed in the contract to protect the lessor from potential asset abuse.

These are all items that need to be clarified in a landlord-tenant utilities agreement.

And it does not stop there. To make sure that you have a compliant, state-specific lease agreement, check out the state landlord-tenant laws regarding whether it is even permitted to bill the tenants for a shared utility. When that’s done, go and check your local laws, too (Toland and Colwell, 2017).


  1. Over-Use of Utilities

Some landlords cannot avoid including some utilities and services with the rent. Sadly, what it has been witnessed is that more often than not, any desire for energy conservation flies out the door when a tenant does not have to pay for usage.

Ironically, take that same tenant and make them responsible for the utility bills, and suddenly they develop a sense of environmental custodianship. And the thermostat drops to a more affordable 68 degrees. Murthy and Jack (2014) state that It’s the same for water, electricity, gas.

What’s a landlord to do if they include utilities?

Murthy and Jack (2014) state advise lessors to make sure that they include a clause in their lease agreement that if there is evidence of over-usage, the tenant will pay the difference. But be specific about usage, and consider setting a ceiling to trigger billing. Your lease agreement might say “If the gas and electric bill is under $50/month, the landlord will pay it on behalf of the renter as a courtesy. If the gas and electric bill is over $50 in a given month, the renter will be responsible for their own bill, in its entirety” (Henderson and Campana, 2015)

Obviously the exact figure varies from property to property, so a lessor must make sure they know what is a moderate bill for that rental unit. Reviewing the billing history for that unit as a baseline, before setting a ceiling in ther landlord-tenant utilities agreement (Henderson and Campana, 2015).

Another strategy that can be used by a lessor is hiring a property manager. Tenant screening can be a complex process, and if you don’t have sufficient experience in the real estate industry, you might end up choosing a bad tenant. The main problem with bad tenants is that it can be quite difficult to make them leave your property. Henderson and Campana (2015) state that good property management companies have a reliable and verified screening process that helps them select tenants who will

  • Rent long-term
  • Pay rent on time
  • Minimise the wear and tear of the property
  • Cause fewer problems

A property management company that has been in the business for a long time, has seen thousands of tenant applications. This will help them dig into facts about the potential tenants quicker and identify red flags. If you allow a management company to handle the tenant screening, you are also avoiding rental scams that are directed at property owners. Experienced landlords are aware of the fact that a single bad tenant can cause a great deal of financial and legal headaches.

A high-quality property management company is armed with a lot of knowledge and they can protect you from potential lawsuits and vulnerabilities. Marketing of the property is another important aspect. Skilled property managers have written numerous ads throughout their career and know what to say and where to advertise to get many candidates quickly. Because they handle many properties, they can probably negotiate cheaper rates for the ads both online and offline. Furthermore, they are familiar with sales and know how to close when they field calls from prospects and take them on showings and work with home rental companies and agencies (Toland and Colwell, 2017).

Handling the collection of rent and late fees is an extremely important aspect of property management. To ensure consistent and reliable cash flow, rent must be collected on time every month, and it’s important that tenants understand that. By hiring a professional property manager, the landlord puts a buffer between themselves and tenants, allowing them to be the bad cop who has to listen to tenants’ excuses, collect rent, and handle evictions if necessary (Toland and Colwell, 2017).





  1. b) Show how a Finance manager may deal with short term cash shortages

Cash inflows represent the movement of money into your business (Karadag, 2015). Inflows are most likely from the sale of your goods or services to your customers. If you extend credit to your customers and allow them to charge their purchases of your goods or services to their account, then an inflow occurs as you collect on the customers’ accounts.

It should be fairly obvious that accelerating your cash inflows will improve your overall cash flow. The quicker you can collect cash, the faster you can spend it. That may not sound very businesslike, but it’s true. Accelerating cash inflows allows your business to pay its own bills and other obligations on time, or even earlier than required (Burns, 2016).


Create a forecast

Karadag (2015) stated that a cash flow forecast will give a company a realistic estimate of when money will be coming into your business, when it will be going out, and what you’ll have left after expenses are paid and income is recorded. A forecast highlights the cycles in your business and predicts your cash flow on a monthly and yearly basis. It is not an exact precise forecast, but the results will allow you to anticipate your cash flow for the weeks and months ahead and take appropriate action. If you project to have a cash short fall you can take measures to perhaps negotiate payment dates with suppliers or secure a loan well before trouble strikes.

Combat seasonality by diversifying

Karadag (2015) states that all businesses have fluctuating levels of income and expenditure, which can play havoc with cash flow if not properly managed. For businesses where demand for goods and services is affected by seasonality, this often means they face their greatest costs during their quietest period. And it’s not just Christmas cracker makers or Easter egg producers that are affected by annual highs and lows.

However, any move to diversify should be carefully planned so that it compliments rather than dilutes the business model.


Collect outstanding debt

Burns (2016) states that a business must be in control of how and when you get paid. Quite too often business owners get soft when it comes to collecting cash from customers who owe them. You want your customers to “like” your products, services and delivery, but you also want them to “respect” your financial policies when it comes to paying you. Burns advises businesses that introducing a payment policy will speed up the cash coming into their business. Businesses must also keep their payment terms short to ensure you get paid as soon as possible, and clearly list your terms on all invoices. Also make sure you have a number of methods of accepting payment. Companies that accept a range of different payments are less likely to lose a sell because of limited options.

Credit control and debt recovery are vital pillars of good cash flow management. PricewaterhouseCoopers (PwC) research indicates that nearly one in five companies regard current debt levels as the ‘biggest threat’ to survival. Julian Roberts, director of PwC’s receivables management group, urges, ‘It’s a good idea to establish a structure to the debt chasing procedure’ (Karadag, 2015) He recommends that follow-up calls take place after a certain interval, invoices are re-issued a limited number of times and if that fails, a more serious course of action kicks in. The longer a debt remains unpaid the harder it becomes to collect.

Karadag adds that If customers are on 30-day payment terms for example, someone has to call on day 31 and ask where the payment is if it hasn’t arrived. If they don’t do that, it immediately weaken their cashflow position.


Delay payments

(Karadag, 2015) advises that when cash flow is tight, keep a watchful eye on expenses, including inventory, and cutting costs where possible is imperative. One area that this can be applied this by paying bills when they are due. You may be tempted to pay bills immediately, as it will get them out of the way. However, you may end up needing the money that you’d spend to pay the bill, so it’s recommended to wait until you actually need to pay the bill to do so. You can also negotiate your with your suppliers for more time to pay them. But make sure the negotiations don’t jeopardize your relationships Oruenjo, 2016).

Invoice promptly

Many clients prefer to wait 30 to 60 days after receiving an invoice to make payments, which means that you’re already going to have to wait to get paid. It’s important that you send out invoices promptly to your clients, as that will shorten the period between making the sale and receiving the needed income. Make sure to follow up with customers that are having a hard time paying for the invoices. When you examine how to improve cash flow in small business, you may want to focus on speeding up the process for customers to pay you.

Look into getting a loan

Sometimes, you’ll just need a loan to help you get through a financially difficult time.

Consult a lender network to see if you are eligible for a small business loan. A good loan will help you to cover the holes in your budget and will ensure that you can purchase equipment, materials or stock to tide you over through peak season. There just isn’t always going to be enough cash on hand for those large orders, but you need to make those orders if you want to capitalize on the best times of the year for sales. If necessary, you should look into your best loan options. If your business is struggling financially and you are not sure you know exactly what to do to turn the financial ship around, then I’d lastly advise you to consider getting the help of an expert.

Borrowing money can be a sound business decision when done strategically and with discipline. But borrowing money without thinking through the consequences can end in business disaster. Think through exactly how you expect your company to benefit from the borrowed cash over the long-term and how likely you are to actually receive the anticipated benefits. Capital can be leveraged to help a business grow or thrive, but it won’t stop you from crashing. You can use a short term business loan or business line of credit to bridge short term cash flow problems, but it could cripple your business with more debt if you don’t have a clear ROI or improvement plan. Make sure you plan out how the capital will help your business before you take on the extra capital.


Invoice Financing

You can get cash immediately for all unpaid invoices due in the next 90 days to fill a cash flow gap while you wait on your customer to pay.


Cashflow Budget

Terry (2017) states that a cash flow budget is an estimate of all cash receipts and all cash expenditures that are expected to occur during a set time period. A cash flow budget forces you to think through your plans for the year, and it forces you to test those plans to see if they have a high likelihood of success. If not, you can change your plan before it fails. Start by understanding where every single piece of income is coming from each month, how much it is, and when you can expect it. Next, write down an exact definition of what each cash outflow is (for example, what exact expenses are classified as “training”).When you see how you can make the money work, you become more likely to start taking action and eliminating non-essentials. Understand your burn rate, which is your negative cash flow. Cash flow tells you how long a company could stay in business without revenue or additional funding. To calculate, you need to include all of your monthly operating costs. This way you’ll know how much the business is spending on a monthly basis, and anything that’s not vital can be cut. You can manage all of these numbers through an accounting system, like Quickbooks.


Discount for Quick Payment

One option to increasing cash flow is to offer your customers discounts if they pay early. While this practice may impact your profit margin, it may help your management of cash flow by incentivizing customers to make payments earlier than billing cycles typically require. Your company may also take advantage of this with suppliers and others that you owe. If you find yourself struggling with cash flow then you may want to implement a payment first policy that makes your clients pay before you provide services. If you’re not willing to have such a strict policy, then try invoicing your customers faster. The quicker you can get them an invoice, the quicker they can potentially pay it (Oruenjo, 2016).



If your business is growing rapidly and you’re concerned about meeting your overheads, you may want to explore factoring your unpaid invoices as a potential, short-term solution to cash-flow problems (terry, 2017). Factoring can be defined as “the business of purchasing and collecting accounts receivable or of advancing cash on the basis of accounts receivable.” Factoring works this way: Once you issue an invoice, a factoring company pays you a percentage of the account receivable (generally 70 to 90 percent), so you don’t have to wait to get paid by the customer. The factoring company takes on the responsibility of collecting the money from the customer. Invoice factoring can help improve their cash flow and free up the working capital needed to run your business (Oruenjo, 2016). As with any such financing transactions, be sure to seek professional advice to determine if this is a suitable option for your business.




Toland, R.K. and Colwell, B.B., 2017. True Lease or Disguised Financing. American Bankruptcy Institute Journal36(8), p.32.

Terry, S., 2017. Know Your Rights: Financial Safety.

Murthy, D.P. and Jack, N., 2014. Leasing and maintenance of leased assets. In Extended Warranties, Maintenance Service and Lease Contracts (pp. 239-264). Springer, London.

Henderson, J. and Campana, J.M., 2015. Equipment Leasing, or” I Thought I Entered into a Lease?”. American Bankruptcy Institute Journal34(7), p.24.

Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A strategic management approach. EMAJ: Emerging Markets Journal5(1), pp.26-40.

Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.

Oruenjo, M.A., 2016. Effects of cashflow management practices on business profitability of Small and Medium Enterprises at Narok Town.


Leave a Reply

Your email address will not be published. Required fields are marked *

Open chat
Need help?