Guide to Accounts Payable for Community Associations and Condo Corporations

About 75.5 million Americans live in communities managed by homeowner associations. That’s more than 30% of the country’s housing, based on research from the Foundation for Community Association Research. This is similar in Canada too. For instance, Ontario alone has over 940,000 residential condo units, with around 47% of the new construction being condominiums.

One of the biggest advantages of living in an HOA or condo community is the upkeep of shared spaces. People want to live in a safe, attractive, and connected community, and shared amenities play a big role in that. Community associations maintain common areas, including landscaping, parks, pools, gyms, and clubhouses. Many associations also invest in security, such as gated entries, patrols, cameras, and neighborhood watch programs. These are the kinds of features that raise the value of homes governed by HOAs. For example, homes in HOA communities sell for 5% to 6% more than those outside an association, according to data from the Cato Institute.

Of course, none of these benefits happen without a financial system behind them. Associations collect dues from homeowners, an average of $259 a month. That money pays for everything from landscaping and repairs to utilities and insurance. Not all expenses are paid on the spot, though. Vendors often bill after the work is done. Some ask for a deposit up front, with the balance due later. Any outstanding payments fall under accounts payable. For example, if your association owes money to the landscaper, that shows up as accounts payable. The same goes for construction projects, repair work, or office supplies.

That’s where the knowledge of accounts payable is highly needed. Today, we’ll walk you through the essentials of accounts payable (AP) for community associations and condominium corporations. We’ll share what it means, why it matters, the regulations to keep in mind, and how modern software can make the process faster and easier.

Guide to Accounts Payable for Community Associations

When board members volunteer, it’s to guide the community. Nobody signs up expecting to personally scrub hallways, mow lawns, and repaint the clubhouse. That kind of work is contracted out. And with contracted services comes accounts payable. 

Simply put, accounts payable is the money your association owes vendors for work they’ve already completed. It’s credit extended by suppliers: they perform the job, send the invoice, and you pay later. On the balance sheet, AP shows up as a liability. Each invoice gets recorded according to the terms agreed upon before the work begins.

The Role of AP in HOAs and Condos

Managing accounts payable well keeps the community’s finances healthy and builds trust among homeowners. Done right, AP ensures bills are paid on time, relationships with vendors stay strong, and the board has clear visibility into the community’s cash flow. Let’s look at the main roles AP plays.

Processing Vendor Payments

Vendors are actually your partners in keeping the community running smoothly. Accounts payable is the link between the board and those vendors. How you handle payments can affect the quality of service you receive. When vendors trust an association to pay promptly, they’re more likely to deliver top-notch work, extend discounts, and show flexibility when budgets are tight. 

In fact, many vendors offer early-payment incentives, like 1-2% off if you pay within ten days. On the flip side, sloppy payment practices damage the relationship. Service quality drops, negotiating power weakens, and overdue invoices quickly escalate to complaints reaching your board president’s desk. In worst cases, vendors cut critical services such as waste and water services, destroying the board’s trust in the eyes of community members. 

Maintaining Healthy Cash Flow

By using agreed payment terms wisely, associations can extend their cash on hand for operations and capital projects. In practice, that means your HOA is borrowing from vendors, which is, of course, interest-free. Beyond strategic timing of when to make payments, AP can help generate extra income. 

Many associations use corporate credit cards to pay vendors, which typically offer 0.5% cashback. That might sound small, but $1 million in annual operating expenses adds up to $5,000 back into the budget. For communities, that can mean the difference between patching sidewalks this year or putting it off.

Conducting Audits

State laws often dictate how and when associations must conduct audits. Some are stricter than others. For example, in Texas, condo associations are required to perform an annual audit, but HOAs are not. In California, every association must complete an audit once a year, and the board has 120 days to share the report with members. In Florida, HOAs with revenues over $500,000 must conduct yearly financial reporting if at least 20% of members request it. Regardless of state requirements, our advice is that every association should complete an annual audit.

Audits may feel like a necessary evil, but they’re a critical part of good governance. How smoothly that process goes depends largely on the accounts payable team. When invoices and vendor records are organized throughout the year, auditors can get the information they need quickly. That means less disruption for the board and fewer late nights digging through files. On the other hand, missing or inaccurate documentation pulls board members away from their core responsibilities and wastes time correcting errors.

Managing Tax Payments

Even though HOAs and condos operate as non-profits, the IRS still views them as corporations. That means they must file taxes each year. Most associations file under Form 1120-H, which carries a 30% tax on all profits. Others use Form 1120, with rates starting at 15% on the first $50,000 in income. Also, state laws vary. For example, in Massachusetts, associations must file a state return and pay applicable taxes.

This is where accounts payable plays a big role. The AP team tracks expenses, prepares reports, and ensures payments are made on time. Staying compliant avoids penalties and keeps the community’s financial reputation intact. 

Regulatory & GAAP Considerations

Like any organization, HOAs and condos are expected to follow Generally Accepted Accounting Principles. These standards are what keep financial statements accurate, transparent, and comparable. Out of the many GAAP guidelines, four core principles matter most for associations:

• Principle of Regularity: Financial statements must follow GAAP rules consistently. This makes reports reliable and comparable across different time periods and communities.
• Principle of Consistency: Once you adopt an accounting method, stick with it. If you need to change, disclose what changed, why it changed, and how it impacts the financials.
• Principle of Sincerity: Financial reports must reflect the truth. Accountants are expected to present an honest, good-faith picture of the association's finances, not paint a rosier story than reality.
• Principle of Permanence of Methods: Similar to consistency, this principle stresses using the same accounting methods over time so stakeholders can compare results year to year.

Choosing Your Accounting Method

The accounting method you choose affects how your association tracks and reports money. Associations have three accounting options: Cash Basis, Accrual Basis, or Modified Accrual Basis. Your choice determines how accounts payable appear in your statements.

Cash Basis

With cash basis accounting, transactions are only recorded when money actually changes hands. You recognize income when assessments are paid and expenses when checks are cut. Under this method, accounts like Assessments Receivable or Accounts Payable don't exist on your financial statements.

Accrual Basis

Accrual basis records expenses and income when they occur, regardless of cash flow. That means assessments are recognized when billed, not when paid, and vendor invoices are recorded when received, not when the check is mailed. In this system, both Assessments Receivable and Accounts Payable appear on the books.

Modified Accrual Basis

This method combines both approaches. Revenue is tracked using the accrual method, while expenses are recorded on a cash basis. Many associations use this hybrid because it gives a more accurate picture of income while keeping expense tracking simple.

What Basis of Accounting Should You Use?

Most accountants will tell you that the Accrual Basis is the gold standard for associations. It's the only method that gives a true picture of your community's financial health, and it's also the only one that fully complies with GAAP. That accuracy matters when boards are making long-term decisions or explaining finances to homeowners.

That said, accounting rules aren't uniform across states. Some states have their own laws that override general best practices. Take California, for example. Associations are legally required to use the accrual method when preparing their pro forma operating budgets. So, make sure you understand the rules in your state. It saves time and keeps your board out of legal trouble.

Typical HOA AP Workflow

A well-structured accounts payable workflow is the backbone of financial management. It keeps your association compliant, ensures vendors are paid on time, and prevents cash flow headaches. Here's how an HOA AP process should run:

1. Purchase Requisition

The process starts when someone identifies a need, maybe new landscaping, roof repairs, or a simple lightbulb replacement. Then the person submits an internal purchase request with quantity, specifications, and estimated costs. Depending on the size of the expense and urgency, the board may either go through a formal bidding process or handle it informally for smaller jobs.

2. Purchase Order Creation

Once approved, the finance team issues a purchase order. This document sets the terms of what's being bought, how much it costs, and when it should be delivered. Then the PO is sent to the vendor for confirmation. This becomes your binding agreement. Smaller tasks like light bulb replacements probably don't need POs.

3. Order Fulfillment and Goods Receipt

Vendors deliver goods or complete services per the PO. Your receiving team verifies everything matches the PO specifications in terms of quantity, quality, and delivery window. Document this with a goods received note or service confirmation.

4. Invoice Submission

After delivery, the vendor issues an invoice. It includes the total due, payment terms, and the due date. This step should never happen before delivery is confirmed. Paying too early can create problems if goods or services don't arrive as promised. 

5. Three-Way Matching

The AP team matches three documents: the purchase order, the goods received note, and the vendor invoice. Everything must line up in terms of price, quantity, and description. If something doesn't match, the issue gets flagged before payment moves forward. Again, this depends on the agreement. For instance, small jobs without POs can't go through this step. 

6. Invoice Approval

Once the documents align, the invoice enters the approval chain. Depending on policy, this may involve the treasurer, finance manager, board members or simply automated software. Speed matters here as delays can cause missed discounts and unnecessary late fees.

7. Payment Processing

Approved invoices are scheduled for payment based on the vendor's terms, such as Net 30. Payments can be made via ACH, wire, check, or even a corporate card. The method of payment usually depends on the vendor's preference. Each transaction is then recorded in the system as settled.

8. Recordkeeping and Reporting

Document every step from PO to payment. These records support audits, tax compliance, financial reporting, and homeowner transparency. We recommend integrating AP with your ERP or accounting systems to streamline reconciliation.

9. Vendor Communication and Reconciliation

Once payment goes out, vendors receive a remittance notice. If a vendor raises a concern such as a missing payment or mismatch, the AP team reconciles the issue. Strong communication with vendors keeps trust high and can lead to better pricing and better payment terms down the road.

Reserve vs. Operating Fund Payments

One of the board's most important jobs is deciding how to allocate the fees members pay each month. In practice, HOA spending falls into two buckets: day-to-day operations and long-term or unexpected projects. To manage this, associations typically split money into two accounts: operating funds and reserve funds. Each serves a different purpose.

Operating Fund

The operating fund covers the costs of running the community on a monthly, weekly, or daily basis. Think of it as the community's checking account: money in, money out, on a predictable cycle. Typical expenses include:

• Services like landscaping, housekeeping, trash, maintenance, and security
• Utilities such as electricity, water, gas, and sewage
• Management costs, including manager salary, office supplies, and postage
• Insurance premiums
• Accounting and legal fees
• Taxes
• Software subscriptions

This list grows with your community's size and amenities. Because operating expenses represent the bulk of an association's financial activity, this account takes the largest chunk of your HOA's budget. Although there's no legally required minimum balance, a good rule of thumb is to keep at least three to six months of operating expenses on hand. Just as important, the board should enforce a clear collection policy to make sure HOA dues consistently cover these recurring costs.

Reserve Fund

The reserve fund is essentially the association's savings account. Reserve funds tackle big-ticket repairs, replacements, and capital projects. By saving gradually, the board avoids hitting homeowners with massive one-time special assessments.

For example, if a clubhouse roof will cost $100,000 to replace in ten years, the association doesn't wait until the project begins to collect the money. Instead, smaller contributions are made each year into the reserve fund until the goal is reached. Common projects covered by reserves include:

• Repaving roads and sidewalks
• Painting community buildings
• Roof replacement on common facilities
• Pool and pump repairs
• Major landscaping work
• Playground, gym, and court renovations
• Emergency repairs and unexpected replacements

To manage reserves wisely, boards should commission a reserve study every three to five years. A reserve specialist will analyze the property, estimate costs, and map out expected replacements over the next 20 to 30 years. We always push for 100% reserve funding, meaning the reserve account has enough to cover all anticipated projects. But that's not always realistic. If the budget is tight, aim for at least 70% funding. Anything less puts your community at risk for special assessments that nobody wants to pay when big repairs come due.

Software Options (LeapAP Module)

As you can see, managing accounts payable for a community association isn't simple. You'll juggle recurring utility bills and a wide mix of vendors. Add in multi-layered approvals, and the process becomes a recipe for disaster if handled manually. The paperwork alone can overwhelm volunteer board members who have day jobs and families. 

Specialized AP software designed for community associations solves these problems. One solution that has been specifically designed with HOAs and Condos in mind and tackles the pain points that trip up many boards is LeapAP. This platform streamlines the association's AP using five core modules:

Invoice Capture

LeapAP automatically fetches invoices submitted by email, portal uploads, and even scans. The platform's AI-driven invoice capture automatically pulls in key details like vendor name, invoice number, date, amount, and taxes. On top of that, the system logs into utility portals to download recurring bills like electricity, water, gas, and waste. This eliminates manual data entry, reduces errors and prevents late payments. For board members, that's time back to focus on leadership instead of paperwork.

Approval Workflow

HOAs often require multiple layers of sign-off depending on the size and type of expense. LeapAP handles that with role-based approval routing. Invoices are directed to the right manager or board member automatically. Each person only sees the items that require their attention, creating a transparent, efficient process. This saves time and builds trust between management and homeowners.

Two-Way, Field-Level Sync

Keeping vendor information, bank accounts, and property records synchronized across multiple systems usually means constant CSV uploads and manual updates. The process is both error-prone and time-consuming. 

LeapAP eliminates that problem by syncing directly with the association's accounting system. Vendors, general ledger accounts, entities, and bank information stay consistent across platforms automatically, cutting reconciliation work and ensuring boards have confidence in their financial data.

Audit Trail

Every action, such as invoice submission, approval, and payment, is logged with a timestamp and stored securely for seven years. When audit time comes, you'll have a clear, complete record of financial stewardship that satisfies auditors. It also gives residents confidence in your board's management.

Payment Processing

At the end of the AP cycle is making the actual payments. LeapAP gives associations flexible, low-cost payment options, including EFT/ACH, automated checks/cheques, and virtual credit cards. Payments can be released securely from anywhere, with remittance details feeding back into the accounting system. This reduces the need for manual check signing and mailing, saving both time and operating costs. Vendors get paid promptly, and as we said, happy vendors provide better service.  

Year-End Audit Prep

A year-end audit is more about the board proving that the association's finances and internal controls are being handled responsibly. An independent Certified Public Accountant typically performs the audit, reviewing the association's balance sheet, income statements, tax filings, governing documents, and any records the auditor requests. Audit time doesn't have to be stressful with lots of unnecessary back-and-forth if you prepare properly. Here's how to prepare the board for audits:

• Organize Financial Records: Start by gathering all financial records from the past year, such as receipts, invoices, bank statements, ledgers, and any supporting documentation. Make sure your accounting system reflects every transaction accurately.
• Reconcile Bank Statements: Go line by line to confirm your books match the bank's records. Any discrepancy, no matter how small, should be identified and corrected before the auditor flags it.
• Review Budget vs. Actuals: Compare actual spending against the approved budget. Variances are normal, but the board should be ready to explain them and provide backup documentation for larger expenses.
• Prepare Supporting Documents: Usually, auditors will look closely at large or unusual transactions. Collect contracts, agreements, and invoices for major transactions. Create a list of outstanding dues and accounts receivable. 
• Accounts Receivable: Prepare a clear list of outstanding dues and assessments owed to the association. 
• Internal Controls Review: Take a hard look at your financial processes. Are dual approvals in place for payments? Are expense reports reviewed? Document any updates or improvements made during the year. Auditors care as much about process as they do about numbers.
• Reserves Documentation: Make sure reserve funds are properly accounted for, with a clear record of contributions, withdrawals, and how funds were applied to projects. Boards should be able to show that reserves are being managed in line with the reserve study.
• Compliance Check: Double-check that your financial management complies with state laws, IRS rules, and your governing documents. Compliance gaps discovered during audits create expensive problems.
• Tax Filings: Since CPAs will review taxes closely, it's smart to file ahead of the deadline, which is April 15th for most HOAs. Having tax filings ready avoids delays and gives auditors one less loose end to chase.
• Prepare Financial Statements: Make sure your balance sheet, income statement, and cash flow statement are completed in accordance with GAAP standards for associations. Clear, professional statements build confidence.
• Communicate with the Board and Members: Audits shouldn't happen in a vacuum. Keep your fellow board members informed throughout the process. Once the audit is complete, share the findings and recommendations with the board and membership. This transparency helps build trust in your leadership.

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