Jordan Bennett is from the National Automated Clearinghouse Association, which is most easily identifiable to us as ACH. We’re talking about the role of the association and why it’s necessary to follow the carefully curated best practices that they’ve put together.
Property management companies are often third-party senders, since you collect rent and pay it to your owners.property
We asked Jordan to join us on The Property Management Show to talk about how Nacha affects property management companies and what you need to know.
- Nacha is the National Automated Clearinghouse Association, which oversees the ACH Network, the backbone for the electronic movement of money and data in the U.S.
- Property managers have responsibilities and can be held liable as third-party senders.
- Property managers can undergo Nacha Certification, which establishes them as a trustworthy company that has taken steps to ensure money is handled correctly.
Understanding the National Automated Clearinghouse Association
Nacha essentially manages the ACH network.
The association makes the rules and educates all participants. When property managers collect rent from tenants and pay that rent to owners, it means they’re participating. There are responsibilities that come with that participation, and understanding the different roles will help keep everyone happy.
Nacha has direct members, which are banks and other financial institutions.
There are also third-party senders, and those are payment providers. Most property managers fall into this classification. Nacha has rules in place that benefit everyone who participates. They help banks work with third-party senders. They maintain the high level of trust that’s necessary when payments are made and received electronically. The money has to continue flowing properly.
All of the direct members and third party senders on the ACH network are subject to the large rulebook that Nacha keeps to detail and interpret all the rules. They can break down what each rule means and how they are defined.
Property Management Companies as Third-Party Senders
Property managers wear many hats. Being a payment provider or a third-party sender in the ACH network is only one of your roles. You probably don’t give it a lot of thought. But, you need the protections that are in place when your tenant originates a payment and that money comes to you and then you pay your owners using your own financial institution. You expect things to go smoothly – but will they always?
Many property management companies handle their rent collections and disbursements through their property management software. This doesn’t release you from the responsibilities of a third-party sender, however. You’re still the one collecting account numbers and routing numbers and banking information.
If you’re collecting rent and paying owners without involving your own bank, the property management software would qualify as the third-party sender. But most property management companies do have money moving in and out of their accounts.
The flow of payments is your responsibility.
What Can Happen During the Payment Flow?
Something that has happened more than once is a property management company going bankrupt. If tenants pay rent before the property management declares bankruptcy but those rents aren’t paid to the owners because of the bankruptcy, there’s going to be a wild disconnect.
The funds will be held in different ways depending on the bankruptcy laws in your state. The ACH rules are in place to protect the incomplete transaction. There will be a lot of owners who are upset and a lot of tenants who are insisting they did pay their rent, and the commotion will be messy. Consumers – or tenants and owners – are not going to know the ACH process. There are protections in place for them, but it’s going to be complicated.
Fraud is another issue that can cause problems for property managers as third-party senders.
If you’re not following good quality control and you don’t have strict processes in place, it’s easy to be a victim of fraud. Someone could call you claiming to be one of your owners. He could say he’d like to change his bank account information so that all future payments are routed into the new account.
Are you going to take his word for it and make the change over the phone, or do you have controls in place where you’ll call him back at the number you have on file to verify the request?
As a property manager, you can think you’re providing great customer service while at the same time handing over rents to a fraudster. You need risk management and checks and balances.
Property managers can think of Nacha standards the same way they think of NARPM standards.
Nacha has a certification program, which can be beneficial to property management companies.
The Nacha Certified program lays out compliance expectations for third-party senders such as property managers. The program was designed to try and help providers do what they’re supposed to do. It’s a place for best practices, recommendations, and process reviews.
There’s a full rulebook that’s condensed into a single document, which is thorough. Property managers can access that document at nachacertified.org.
As a third-party sender, the Nacha Certified program will recommend an audit. A risk assessment can be a critical and important tool. It’s simple in concept and you don’t have to pay for it within this program. You can evaluate your risks and decide where most of your challenges currently exist. Maybe you create a payment file and send it off without having dual controls. Will two people look at something before it’s changed? This audit or risk assessment tool is a good example of how the certification program can provide extra protection and risk management.
Why Property Managers Should Get Nacha Certified
The Nacha certification will establish you as a trustworthy company that has taken steps to ensure money is handled correctly.
Banks and auditors you already work with may find this information helpful. In some states, property managers are required to apply for money transmitter licenses. This certification will help you prepare for that.
When you demonstrate your commitment to protecting consumers, you increase your credibility.
Property management companies can also look for software that’s Nacha Certified. They currently have nine companies that have achieved certification and they’re looking to add more. Some of them do payments processing for rental properties and property managers.
Companies such as banks who look at a Nacha Certified business know that a lot of their own criteria have already been met. They’ll do their own due diligence, but moving through their screening process will be a lot easier for a company that’s already been certified by Nacha.
The list of companies who are certified can be found at Nachacertified.org. And if you have any questions on this process, you can get in touch with Jordan at firstname.lastname@example.org. Follow them on Facebook, LinkedIn and Twitter.
If you have any questions about the podcast, contact our team at Fourandhalf.