Trust Accounting: How to Stay Compliant in North Carolina and Other Trust Accounting States
With so many different regulations across different states it can be difficult to follow for your vacation rental company. This is especially true if you own units across multiple state lines, One of the strictest states with their accounting laws for vacation rental companies is North Carolina. The NC Real Estate Commission has rules that govern short term rentals in terms of managing guest funds and other consumer protections. If you are a North Carolina Vacation Rental Company you are acting as a middle man between the renter and the property owner and are required to use trust accounts. Every state is different and even if you are not in a trust account state it can be a best practice to use trust accounting.
A trust account is an account in the name of others. So when a vacation rental company takes payments it isn’t really their money until they take the fee or commission from the owner’s trust account. Trust accounting can be difficult to keep track of without the proper software. With so many regulations it is critical that you follow and your software can handle local regulations. Here are some best practices to follow for trust accounting.
- How to Stay Compliant
- How Software Can Keep You Compliant
- What Reports You Need
How to Stay Compliant
If you are in a trust accounting state you are legally required to use trust accounting. If your business isn’t in a trust accounting state, using trust accounting can be a great way to make sure your books are balanced. To be compliant, cash must be in hand before revenue is realized. A trust account cannot go negative! Only money in hand can be counted towards revenue.
Although the customers think they are dealing with your Vacation Rental Company, this isn’t correct. According to NCREC, any reservation is between the guest and the property owner making the Vacation Rental Company the middleman.
This can make it difficult when a guest needs to change to a rental that is owned by a different owner. It’s not as simple as moving the reservation. Following NCREC, you need to cancel the reservation with the previous owner before a new reservation is made. The owner is also able to be paid up to 50% of the reservation before a guest arrives which means if a traveler does change their reservation, you need to claw this money back from the owner and make a new reservation.
All of this can seem complicated but it ensures that you are compliant and keeping up with your accounting in real time ensuring that your books are in order.
How Software Can Keep You Compliant
It can be incredibly difficult to keep track of all of the laws and stay in compliance without the proper software. Your software should be customizable for your state’s regulations, keeping you compliant and helping you avoid any mistakes.
TRACK Hospitality Software allows you to customize when revenue is realized; whether it’s at booking, check in, check out or on a schedule. With this you can ensure that payment has been made before revenue is realized. An initial payment must be made for the reservation to occur. If there is a payment schedule for rent, that revenue will only be realized once the payment has occurred. Everyone has their own way of realizing revenue but no matter what your strategy is, TRACK helps you stay compliant by only allowing revenue to be realized once payment is received.
Your software should have the proper failsafes to ensure that you don’t make any mistakes and get out of compliance. TRACK will give you a warning and not allow you to charge an account that will go negative.
We also have experts that can help you stay in compliance by setting up our software for your business. Overall if your Property Management Software has the proper customizable options and failsafes you will be able to easily stay compliant with your state’s regulations.
What Reports You Need
An important part of being compliant is being able to prove that you’re compliant! When the auditor comes there are certain reports that you need to be able to pull to prove that you’re compliant with the regulations. TRACK PM is able to easily pull these reports for you These reports include:
- General ledger
- Trial Balance
- Owner Revenue Reports
- Payment Distribution
- Advanced Deposits
- Check and ACH Register
- Revenue By Unit
With these reports you can ensure that your business is run smoothly and that if you are audited you have all of the necessary information.
Overall trust accounting is a great system to help you keep your vacation rental business in order. NCREC and other state regulations can be difficult to follow, but with the right processes in place, the right software and the right reports, you will be well on your way to being compliant with the government and have a successful vacation rental business.