5 Quick Tips for Collecting Rent on Time
All real estate owners can relate to the sometimes-uncomfortable experience of collecting rent from their tenants. Some tenants are perpetually late in their rental payment, and others may only require a light reminder from time-to-time. What makes this experience even more uncomfortable is the impact that it can have on a real estate owner’s relationships with his or her tenants. Because the property owner’s time is limited, it is not unheard of for an owner to adopt a method of notification about payment due dates that goes out to all renters. That can include those who are always responsible in their payment submissions. Over-frequent reminders may seem callous or overbearing.
There is another factor to consider as well. Should a property owner appear too publicly hassling in his or her collection attempts, this could negate responsible renters’ favorable impressions of the owner over time. Dissatisfied or negative-minded renters can lead to tenants vacating their rentals. In turn, that can leave the owner with a high tenant turnover rate that can greatly affect his or her cash flow. To avoid these issues or other potential fallouts arising from the headache of trying to collect rent on time, we cover five quick tips for success below.
Ways to Motivate Tenants to Pay on Time
While reading these tips, keep in mind the importance of coming up with a balanced system of “carrots and sticks”. You want to provide incentives for your tenants to pay their rent on time, but not provide incentivization to the point where your tenants feel they can take advantage of you. Nor do you want to be too overbearing in your accountability measures, either, for the reasons outlined above and more.
1. Be upfront about your rental payment policy and the consequences of being late. Surprisingly, one of the biggest reasons why many tenants are late in their payments is because they are simply unaware of its importance. Therefore, it can be highly beneficial to make sure that your tenants understand why being on time with their payments is so crucial. Make the details of what is required clear to new tenants so they know what is expected of them from the get-go. For established tenants who are “late payers”, convey to them how their late payment can affect them directly (e.g., their payments go towards property renovations, property repairs, community events, etc.). Keeping your tenants informed of the rental payment requirements and their consequences will help in making rental collection more efficient, and will eliminate any excuse for not making payment due to lack of knowledge about rental policy.2. Be careful about the candidates you select as tenants. Use narrowly-tailored criteria for whom you select as tenants, and stick to them. Be sure to hold all candidates accountable according to the same criteria and standards—discrimination laws prevent unequal application of these policies to different prospective tenants. Among other criteria, be sure that the prospective tenant has good credit standing, has reputable character references, and fulfills income requirements. Experts recommend that for income requirements, you set a threshold of a regular income amount that is at least three times the rental amount or more. Prospective tenants should have in writing that they have an established history of paying rent on time at previous places of residence. Also, be sure to check the candidate’s references and ask for references at his or her previous place(s) of residence: calling a prior landlord and asking for key information can strongly help you in determining if you should accept a candidate’s offer.
3. Don’t collect cash for rental payments, period. The acceptance of cash for a rental payment is never a good idea. Among other factors, cash is easy to lose, leaves no paper trail, and may have been obtained through illicit means (e.g., criminal activity). Establish a firm policy of “no-cash-payments” for rental payment, and spell those terms out in your lease contract. Be sure to spell out the acceptable ways in which your tenants can make payment, so that opportunity for confusion is eliminated.
4. Enforce the rental payment policy and ask the right questions when a renter is late in making payment. Be firm and consistent in your rental payment policies. Doing so will not only make your collection process more efficient, but give your tenants clear guidelines and due dates each month for payment delivery. However, there are times to be equitable in your policy enforcement, too. Experts recommend that you factor the following components into your lease:
- the exact rental amount due each month
- where the payments are to be made, and what payment methods are acceptable
- the rent’s due date, and what constitutes a grace period
- the consequences of a bounced check or a default