Since April 2016, housing associations have been required to cut rents by 1% per year.
The new legislation, entitled the Welfare Reform and Work Act 2016, requires that registered providers of social housing in England reduce rents for 4 years, and comply with maximum rent requirements for new tenancies.
By 2019-20 social rents will be 12% lower than they would have been before this new policy was introduced, according to the Institute for Fiscal Studies.
At the same time, the cost of compliance with new regulations – like the General Data Protection Regulation (GDPR) – means housing associations are under pressure to do more with less.
So, with increasing pressure on budgets and reducing rents, what steps can housing associations take to relieve the pressures on their finances?
Improving the purchasing process
Budgets have an important part to play in cost control. Early recognition of problems is essential for corrective actions to be timely and effective. Purchase order processing (POP) systems that provide budget holders visibility to the consequences of their actions – at the point they make a spending commitment – are far superior.
This is particularly true when it comes to cost control and management agility.
Historically the problem with purchase order systems has been that they have not been user friendly, so those who have avoided using them have had an excuse not to.
Simplifying and streamlining the user experience
It is important that any purchase platform is as simple as possible to use. Employees are far more likely to engage with the system if requests for purchases resemble the user experience in their consumer lives with ‘point and click’ functionality.
Digital technology like POP systems, which enable the budget holder to view the housing association’s financial position against a budget in real-time, and simplify the purchase order creation, can result in touchless processing once the goods or services have been received.
These POP systems allow the electronic capture of invoices on receipt from suppliers and automatic matching to proof of receipt and invoice values. Supplier invoices that match can pass through automatically, while human intervention is only required when discrepancies arise.
These transactional processes allow improvement in efficiency with no loss of control, as safeguards and monitoring have been brought forward to the point of purchase.
Direct and indirect benefits
The direct benefit to businesses of introducing a POP system is the reduction in time spent processing transactions, and the significant improvement in processing time, with invoices processed in days rather than weeks.
The indirect benefits derive both from faster processing and the improved visibility and control provided by the POP system.
Faster processing ensures that transactions are already on the ledger at month end.
It also improves the visibility of purchases, while highlighting those goods received without an invoice, making it easier to process those accruals.
The controls provided by a POP system include full audit trails from requisition to payment, so management and auditors are given greater assurance that the process is complete and accurate, and this visibility reduces both management time and audit costs.
Cash flow, planning and forecasting
Housing associations are not for profit, and any reduction in income can cause an immediate and serious strain on cash flow.
Cash flow planning and forecasting is therefore critical, and the visibility of future cash commitments at the point of purchase allows control against budgets and plans, and facilitates reliable cash flow forecasting.
North West based housing association, Adactus, is one example of an association which successfully implemented a POP solution to create more robust controls over spending across multiple departments.
Prior to bringing in a POP system, Adactus had continued with a manual operation which was leading to long delays in processing invoices.
Using the new solution, the housing association is more in control of spending across departments, increasing transparency and accountability in the process.
It is highly unlikely, at least in the short term, that expenditure budgets for HA’s are going to increase and so they must continue to plan to achieve more with less. A POP system that improves, efficiency, visibility and control over the purchasing process can play an important part in helping them achieve this.