The best ways to collect rent and handle tenants who pay late!
I don’t know about you, but collecting rent is my favorite part of the process. Unfortunately, tenants don’t always have a sense of urgency, oftentimes finding the smallest loopholes/excuses for not paying on-time.
Not collecting rent in a timely manner can be DEVASTATING (think opportunity cost).
Here are a few thoughts on how to operate as efficiently as possible:
1. Choose your renters wisely
When selecting the right applicant start with:
Setting your criteria: Start by being clear about the criteria prospective renters must meet during the application process. Discrimination laws state that you must hold the same standards and criteria to all applicants. If you deny an applicant for having $25,000 in credit card debt, you must deny ALL applicants who have $25,000 or more in consumer debt.
Income requirements: Our minimum is 3x the rent amount. If rent is $1000, we require the tenant to make $3000/month! Some vary based on risk tollerance, but we’ve had a strong record of success with this benchmark.
Good credit: Landlords and property managers should get an up-to-date consumer credit report, like the ones tenants share with you when applying through ZenLord Pro., which includes eviction judgments and past debts.You’ll also see how they’ve been paying other creditors.
Check references: I’m a firm believer that the best predictor of future behavior is past behavior. The #1 question I ask: “Would you rent to them again?”
2. Exercise a no cash policy
Accepting cash for rent payments is never a good idea. Mainly for accounting purposes. Eliminate these risks by establishing a policy that you don’t accept cash as a payment for rent.
Advise your tenants of acceptable ways they can make their monthly payments. If they pay you rent online through ZenLord Pro, you’ll both have a detailed record of every payment, which you can export for tax purposes. It’s a best practice to write into your lease or rental agreement how you prefer to receive rent. With ZenLord Pro, you won’t have to worry about that, since we have a lease all ready for you 🙂
3. Make rent payments automatic
Encourage renters to pay rent via an auto-pay or auto-deduct system. This eliminates the human error factor and helps ensure rent arrives on time every month. There are multiple ways you can set up automatic rent payments.
Collect rent through Zenlord Pro, as opposed to services like PayPal or Venmo. Once you set up the details of rent and when it’s due, we’ll help you invite your tenants to pay. They will be notified on the 1st of the month, via text, so you’ll both rest easy knowing the rent will be on time. And no one will miss dealing with rent checks!
See all payments in one place, including deposits and move-in costs. You’ll know at a glance if your tenants are current with payments, or if the rent is past due. Export payment history at tax time or any time.
Collecting rent with ZenLord Pro is free for landlords. Tenants can choose to pay for free with their checking accounts or for a small fee if they pay with a debit or credit card.
Automated clearing house debits
An ACH (automated clearing house) withdraws money from the renter’s bank account. To authorize this transaction, renters sign a document that allows the landlord to withdraw a set amount of money on recurring basis.
The downside is that if a renter doesn’t have enough money in their account to fund the withdraw, the draft will bounce, and you won’t get paid. ACH systems usually cost $.50 to $3.00 per transaction and take four to seven days to process.
Online bill pay
All major banks have an “online bill pay” feature. If you don’t want to set up an ACH, you can ask your renters to set up their rent payment as a recurring bill with their bank. This way, the bank will issue a check and mail it to you automatically every month. The downside: you still have to deposit the check, and payments could get lost in the mail, even though the bank is mailing the check, not the renter.
Had no idea this was a thing…but prior to the invention of online payments, some landlords would collect 12 post-dated checks, one for every month of a year-long lease. Then, the landlord would deposit one check on the first of every month. It’s a pretty nifty way of doing it, but most renters can be uneasy about writing 12 post-dated checks, and rightfully so. You can easily explain that it’s illegal to cash a check before the date mark.
4. Enforce your rent collection policy
To ensure consistent, timely rent payments, keep your collection policies firm. In your lease, address all payment related issues including:
- The amount due every month
- Where payments can be made
- Acceptable payment methods
- When rent is due, with grace periods
- Consequences of bounced checks
If your renter pays the rent late, and you know it’s a one-time issue, I typically cut them some slack. But I’m firm about my rent collection policy, so they don’t take advantage of me in the future. At ZenLord Pro, we suggest forgiving a late fee once, but only once.
5. If your renter pays late, ask them questions
If you renter is late with a rent payment, ask these questions:
- When do you expect to make a payment?
- Where will you submit your payment?
- What’s the exact amount you’ll pay?
- What will be your method of payment?
- What’s the source of income you will be using to make your payment?
Hopefully, your renter to be honest and open. If they seem to be evasive when answering, it might be time to consider the eviction process.
6. Reward responsible renters
A critical part of managing a rental property is keeping great renters for the long term. Sometimes landlords can be so focused on preventing unwanted situations, they overlook the renters who make their job worthwhile.
If you have a renter who always pays rent on time, abides by your rules, and takes good care of your property, show them how much you appreciate them with an Amazon or Starbucks gift card. Showing them you appreciate them could inspire them to renew their lease. A renewed lease is always the ideal route to go…especially if you are able to increase rents to keep up with inflation!
POPULAR ONLINE RENT COLLECTION OPTIONS FOR TWIN CITIES LANDLORDS: WHICH ONE TO CHOOSE?
Cozy powered by Stripe
Stripe has a robust and flexible API, so developers love how easily it can be integrated. All documentation is accurately organized, which makes Stripe a great platform for integration with other systems. For customers, the main benefit to using Stripe is that it supports multi-currency and doesn’t require adding a bank account. The only drawback is its convenience fee of 2.9% + 30 cents per each successful transaction. But at the same time, there’s no setup or monthly fees. This means neither you nor your tenant will be surprised by any hidden fees. Stripe offers a secure payment gateway, which confirms its status as a go-to platform among other similar online payment systems. Plus, there are no charges for refunds or disputes.
ZenLord Pro powered by Stripe
See Cozy above. BUT, when it comes to rent payments, rental application fees, and payments for work orders, most Twin Cities landlords choose ZenLordPro. ZenLord Pro combines all of the great benefits that Cozy brings to the table, but includes a myriad of additional resources for landlords to maximize efficiency. Including a seamless way to schedule showings for vacant units, to detailed accounting software (sorry QuickBooks). We even go as far as providing you a free local vendor network that we’ve hand selected based on past experience in working with each provider.
PayPal is a worthy alternative to Stripe. PayPal offers its clients secure payments, faster checkouts, and a system of rewards. With constant fraud detection, online transactions via PayPal are safe and secure. Also there’s no need to re-type your financial data each time you initiate a payment. However, the setup process can be confusing for some, with too many fields to fill in and too many steps to take to finally get a confirmation. PayPal requires the same convenience fees as Stripe does (2.9% + 30 cents per transaction), but it cannot accept ACH or wire transfers.