Receiving a donation can actually be harmful to a charity?  Isn’t that counter-intuitive?  Absolutely.

Let me explain.

How a donor or foundation donates is just as important as how much they donate.

Practically speaking, a foundation’s grant process should be straightforward enough so charities are not excessively burdened when applying.   Another example is respectful communication between the donor and the charity that doesn’t belittle the recipient.  Additionally and no less important, of course, would be the turnaround time from promise to delivery of the donation.

Furthermore, as a money guy I’m especially interested at how easy the donation is to use: the donation should be given in a currency that is plug-and-play and not plug-and-pay (or pray); the payment method (check or wire transfer) should be one that provides quick access to the money without additional clearing periods.

In a similar vein, and this is what I’d like to focus on today, of crucial importance is the payment schedule of the funding such that it provides financial support and reduces stress.

Therefore, donors who choose to do the opposite – structuring their donations in ways that waste time and cause unnecessary costs – leave me scratching my head to understand their reasoning.

It is rare that the timetable of when a donor would like to write a large check overlaps with when a charity would like to spend said monies.

For example, research has shown that private donors will most likely wait until the last quarter to donate because of tax-related issues.  While this might be great for organizations whose main activities are in the winter, most nonprofits aren’t so lucky.

We see this often with Foundations, as well.  Grants are often given out according to a foundation’s own legitimate needs, many times broken up into three or four parts.  For charities who are using the grants for ongoing monthly support, this bunched-support can be challenging.

But neither of these scenarios are surprising and many can be planned for in advance.  (Yes, I know, easier said than done.)

No, I’m distressed about another donation-scenario altogether.

There are times when donors are willing to fund a program according to the program’s schedule – a dream come true for the nonprofit – but the donors delay the payment, only reimbursing the charity after-the-fact.  This manner of payment might be tolerable for organizations with reserves.  Most nonprofits, however, don’t have reserves in larger amounts (especially here in Israel), and the smaller organizations certainly do not.

As one reader pointed out after my last post, this type of payment-plan forces the recipient charity to do one of two things, neither optimal (to say the least):

  1. Turn to their banks for a line of credit, a solution that imposes additional stress and financial costs.
  2. Use money from other grants, which legal issues aside, raises ethical challenges and exposes their other restricted funds to pointless financial risk.

If this is the case, why do funders choose to schedule their donations this way?  Moreover, where’s the trust?

As an outsourced CFO to nonprofits and small businesses alike, I’ve seen firsthand how some for-profit startups will receive funding based merely on a vision or a person’s previous startup success – a huge liability for an investor.  In this last case described above, in contrast, the nonprofit isn’t awarded even a small portion of similar trust.

This is, of course, a paradox because if there isn’t trust then there really is no reason for the donor to support this particular charity.  But yet it happens nevertheless.

I believe in due diligence.  I am a proponent of ongoing reporting.  I fully support project management, vetting a charity, and all the other things that are vital in ensuring a funder’s buy-in.  But there are a number of other options available that can build and demonstrate trust, while simultaneously delivering multi-faceted financial assistance.  The two are not mutually-exclusive.

So I return to my original point, and the title for this piece, I simply do not understand why a donor would choose to fund a program only after the charitable recipient has fronted the money, thereby causing the charity needless stress and potentially causing more harm than good.

Please, help me understand.

Thank you in advance,

Shuey


Disclaimer:  
This blog houses my personal opinions and is for informational purposes only — not advice.  Before putting into practice any of the information mentioned above, please consult your board, staff, and other relevant experts.

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