Ways To Help You Collect Rent On Time
Nothing is more frustrating than struggling to collect rent from tenants.
Whether they pay late—or not at all—landlords and property managers consistently struggle with overdue rent payments. Here are a few proven solutions to collect rent. Property management companies and building owners can employ these strategies to set everyone up for on-time success.
“What’s the best way to collect rent on time from our tenants each month?”
“It’s already the 5th, and we’re still waiting on Jon Doe, who’s late with rent every month…”
“Does every property management company struggle with tenants who won’t pay their rent?”
Collecting rent on time is the last thing that should be causing you or your property management company problems. And yet, there are tenants late with payments every month without fail…or worse, partial payments, refusal to pay rent because of [insert excuse here], or ghosting you.
Your success as a building owner hinges on collecting rent consistently each month. But when you’re struggling with tenants over the exchange of economics and shelter, things can get tricky.
So, why is it so hard to get tenants to pay rent on time?
Sometimes, the tenant is genuinely struggling in life—a reality with which we can all sympathize. As fellow humans, we generally want to give people the benefit of the doubt, and even offer some form of assistance if possible.
However, a person struggling who needs a break until they get back on their feet isn’t always the reality. Unfortunately, there are people out there who are irresponsible and looking for ways to game the system.
These people are as unavoidable as they are challenging to cope with, and they come from all levels of socio-economic backgrounds and status. Never assume that your property management company is protected from rental collection problems just because your rental rates may be high.
Paying rent late is an issue experienced by all property management companies.
If you’re having difficulty collecting rent from tenants, here are practical ways to collect rent on time and assist tenants who tend to pay late.
Automate Your Rent Collection Process
There are plenty of ways to automate your process for collecting rent. Make a requirement that renters pay their rent via an auto-pay system, for example. We live in a world where even those with limited access to or knowledge of computers can still set up automatic payment withdrawals through their banks and financial institutions.
Setting up automatic payments helps eliminate the human error faced in collecting rent. Using an automated rent collection process streamlines the entire process and tenants can’t accidentally forget to pay rent. It’s also essential to ensure that this process is set up and verified during the lease signing process.
Once you have tenants entered into your automated system, collecting rent becomes much more manageable.
There are a few ways that your property management company can go about collecting rent via automation.
Online Bill Pay
Most banks have an online bill pay feature. Online bill pay allows your tenants to set up a recurring rent payment with their bank. The bank sends your property management company a check in the tenant’s name, helping to smooth the process.
However, you may still end up waiting on the mail, and the process can become delayed. Also, if the tenant doesn’t have enough money in their account, the transaction will bounce.
This option enables your property management company to withdraw money from a tenant’s bank account via an automated clearinghouse, or ACH. ACH debit is a good option, as payments go into your account via direct deposit, no mailed checks required.
As with online bill pay, if a tenant doesn’t have enough money in their account, the withdrawal will fail, and you’ll need to pursue other solutions. ACH systems will cost you anywhere from $.50 – $3.00 per transaction and can take a business week to process.
Virtual Wallets: Paypal, Venmo, Google/Apple/Samsung Pay
These instant payment options are easy and convenient ways to collect rent from your tenants. They’re available to anyone online, and once connected with a bank account, offer instantaneous money transfers with a couple of clicks, taps or swipes.
However, these mobile wallet options are not without flaws. Some only offer limited purchase/payment protections when it comes to collecting rent payments. Others tie money up for days in the case of an error or needed revision.
Online Property Management Software/Webtools
There are a variety of property management software programs, web tools, and even website hosting solutions, also used for collecting rent.
These tools provide a portal for your tenants when making repair and maintenance requests, reporting issues, and concerns. Through the portal, tenants can review lease terms, account details, update information, and of course, pay online.
Among the most popular solutions are Cozy, Buildium, and Avail. These platforms will help you to streamline your property management process, including everything from basic communication between your tenants, your contractors and maintenance teams, property accounting, financial reporting and company financials, lease and document management, and even rental listings and applications.
These tools are an excellent way to stay organized even across several properties while enabling an easy way for you to collect rent and work with your tenants.
As with everything, you’ll need to consider any online payment options carefully. They offer convenience, but there are a few risks that you should weigh too.
Select Tenants Carefully
Set your tenants up for success by carrying out your due diligence before they sign on the dotted line of your lease agreement. It’s a challenge to find the right tenants you can trust to pay on time and respect your property, but it’s certainly worth the extra effort.
Ideally, you’ll want tenants with an excellent rental and credit history, but it’s not always feasible due to a variety of factors.
In short, life happens to people. Even those who have good credit and rental history may fall into hard times, making paying rent on time difficult, if not impossible. While there are plenty of people who choose not to pay rent for frivolous reasons, there are many who have trouble paying rent on time due to hard times.
Regardless of the root causes, your property management company still needs to collect rent on time for your business to succeed. Screen potential residents carefully.
Ideally, your tenants should have and maintain a regular income of at least 3x the rent amount or more. You should also verify that they have a positive history with previous landlords and property management companies paying rent on time.
Background and Reference Check
Make sure that all prospective tenants can provide a list of references and are willing to submit to background checks. Be sure to make the reference calls. You’d be surprised at how many references don’t end up with positive results.
There’s nothing wrong with checking prospective tenants’ credit history. You’ll get a good idea of payment history, and it will give you an idea of what to expect if you take them on as a tenant.
You may have additional criteria that you want to be met and plan to uphold before signing any new tenants. Just be sure that you consult with a legal expert on your rental practices. If your rental practices are unfair, biased, or discriminatory in any way, your company can find itself in serious legal trouble. Always learn landlord rights as they vary from state to state.
Consistent Rent Collection Policy Enforcement
You should have a clearly defined, plainly stated, and consistently enforced rent collection policy.
Collecting rent becomes much more comfortable when everyone understands the expectations and where to find information when questions arise.
Sometimes good tenants fall on hard times. It’s essential to be consistent with your rent collection policy, but it’s also wise to build in a few fail-safes that favor your tenants too. Some of these may include:
- Variable payment methods
- Grace periods
- Consequences of bounced checks
- Open communication lines
If a tenant reaches out to you and explains their situation ahead of time, it’s okay to give them a break. Reasonable accommodations not only foster a sense of stability, but it also portrays your property management company in a favorable light.
For the most part, though, consistency in how you enforce your rent collection policy is a crucial factor in ensuring that you collect rent on time, every time.
Incentivize and Reward Responsible Tenants
Incentivize and reward tenants who have a good record of paying on time; this is an excellent practice to help ensure you able to collect rent on time consistently.
Holding onto good tenants is much better than finding and taking a risk on new tenants. They help care for your property, reduce vacancy, and provide a reliable revenue stream.
Make it well-known that your property management company rewards responsible tenants who consistently pay rent on time. This incentive should be on your website, advertised at your properties in common areas, and discussed during lease signings.
Showing your appreciation can be as easy as rewarding good tenants with gift cards, prime parking spots, or access to special events such as cinema, sports, theater, and other local attractions.
By rewarding good tenants who make rent collection easy by paying on time, you’ll help to incentivize others to do the same. A reward is proven to be a far better motivator than punishment.
For more ideas, tips, and best practices to help you manage your building, grow, and retain excellent tenants, visit our blog.