Collecting rent from tenants has its own set of challenges, especially when tenants are reluctant to pay. Maybe there’s a dispute over a particular item. Or maybe they may want to pay their rent using a method you don’t accept. Sometimes they simply don’t have the money. Whatever the case, collecting rent can be challenging.
It can also be challenging to decide what payment methods to use for tenants. Cash? Credit card? Money order? Each method has specific pros and cons which can make it difficult to determine which is the best way to collect rent from tenants.
In this blog post, we’ll discuss the best payment methods for rent collection and three tips to help you make sure your tenants are making their monthly payments.
What Are the Different Options for Collecting Rent From Tenants?
There are numerous options when it comes to the best way to collect rent from tenants, including cash, credit or debit cards, money orders, auto draft, Payslip, and more.
The method you choose will largely be dependent on what type of business you run, who your tenants are, your location, and ultimately what is most convenient for you and your tenants.
Let’s look at each method of collection and the pros and cons of each one.
- Cash in Hand -- The one major benefit to cash is it’s immediate and you know you have money in hand. There’s no need to worry you aren’t going to receive payment, or that it might bounce as with a check.
- Safety -- When dealing with cash there is always a concern about safety. If rent is $2,000, your tenant knows you’re then walking around with $2,000 cash. If you’re collecting from more than one tenant, that’s potentially quite a bit of cash to carry on your person.
- Illegitimate Bills -- Another concern with cash is the money may be counterfeit. There’s no guarantee the cash in hand is legitimate.
- Record Keeping -- Many types of payment create their own paper trail, but with cash, you have to make your own records. You not only need to create a receipt for yourself, but also for the tenant.
- Delivery Time -- Another reason cash is not ideal is it takes time to collect the money and to take it to the bank to deposit it. It’s something that has to be done in person because you don’t want to send large sums of cash through the mail.
- It’s Automatic -- One of the biggest benefits to credit and debit card payments is it’s automatic.
- It’s Convenient - Not only is it automatic, but it’s also convenient for both the landlord and the tenants. There’s no need to meet in person, and the tenant can input their card information without having to leave their home.
- Insufficient Funds -- One major con with debit cards is it may show a tenant has paid, but a few days later it might update to say the tenant actually had insufficient funding.
- Type of Card -- Another disadvantage to credit/debit cards is you may not be able to accept the type of card your tenant uses. It depends on what type of system you use, and your system may not support their credit card.
- Fees -- Fees are probably the biggest drawback to using credit and debit cards. Credit card companies usually take between three and five percent of each transaction. That’s a number which adds up quickly.
- Certified and Guaranteed -- Money orders are certified and funds are guaranteed. A landlord can be certain the tenant gave the right amount of funds. Money orders also come with a receipt making it even more of a guaranteed payment.
- No Fee for Landlord -- There’s no fee for the receiver which is a pro for the landlord.
- Extra Work for the Tenant -- It requires extra work for the tenant. Every 1,000 dollars requires an extra money order.
- Expensive Fees for Sender -- They are also very expensive for the sender. This may not be a con directly to the landlord, but it’s a definite drawback for a tenant and they would likely not prefer this method of payment.
E-check/ACH Auto draft
- Automated and Instant -- One of the major pros of using an auto draft with a tenant is the payment is automatic and instant. It comes out of their account every month at the same time and it does not require extra time for face-to-face pickups or deposits at the bank.
- Banking Security Concerns -- One drawback with e-checks is the tenant would have access to the landlords banking information in order to send payment. This may be a concern for landlords who want to protect their private banking information.
- Tenant May Reverse Payment -- Another consideration with e-checks is a tenant can always cancel their online payments and stop sending funding.
- Convenient -- Can be done at any CVS or 711 location. Even if the tenant is out of the area, they can still pay their rent on time.
- Payment Posts Immediately -- A tenant can go to either of these locations and hand the cashier a printed barcode and the cash payment for rent. Once the cashier inputs the information and cash the payment posts immediately.
- Secure -- This is a very secure form of payment making it safe for both the tenant and the landlord.
- Tenant Has to Drive to a Location -- One small inconvenience is the tenant does still have to drive to a location in order to pay. They can’t make this payment from their home. It may also be a hardship if there is no 711 or CVS location in their area.
- Small Fee -- There’s a small transaction fee for the tenant.
The Best Ways To Collect Rent: 3 Simple Tips
One of the most frustrating things about being a landlord is having to deal with tenants who are consistently late or refuse to pay their rent. To avoid this situation, here are some of the best ways to collect rent from tenants.
1. Do Your Best to Choose Good Tenants
This may sound like an obvious answer, but finding good tenants is foundational to making sure you get paid.
Here are some ways to screen your tenants before handing over your rental place:
Determine What Your Criteria Is and Be Consistent
The first step in choosing good tenants is to decide what criteria you have for choosing them.
Make sure you’re very clear with your prospective tenants about what standards they must meet to pass the application process. Fair housing laws state that you must give the same criteria for each of your potential tenants. This means if you deny one applicant because they have poor credit, you also need to deny another.
Effective Screening Practices
If you’re looking for ways to screen your tenants, here is a list of ways to help you wisely choose your next renter.
- Create a standard application which includes information for a background check, copies of government-issued ID’s, proof of income, and references.
- Pre-screen applicants by asking questions that are important to you. For example, your rental may not accept pets, or the applicant may not be ready to move quickly enough for your vacancy. Asking these questions up front saves you both a lot of time.
- Even if the applicant passes your pre-screening questions, it’s still a good idea to send them an email which includes your qualifying conditions. This gives you and the applicant open communication and lets them know clearly what you’re looking for.
- Ensure your application process and questions adhere to fair housing laws.
2. Clearly Communicate your Rent Collection Policy and Stick to It
It’s one thing to have a collection policy, but it’s another thing entirely to enforce it. Everyone falls on hardship from time-to-time, and if you find yourself in a situation with a trusted renter who falls behind one month on rent, you may very well feel comfortable exercising leniency.
However, as a general rule, you should stick very closely to your rent collection policy. This is, hands down, one of the best ways to collect rent. Tenants who don’t pay on time should be expected to pay late fees and should know that failure to pay on time could result in eviction.
Stay consistent with your tenants and use the same rules and deadlines for everyone. This keeps the expectations clear and doesn’t open the door for uncomfortable or frustrating situations in the future.
Unfortunately, human nature is to take advantage of lenient policies. If you allow your tenants to pay late without repercussions, they will likely continue to do so. Once this pattern has begun, it is very difficult to get back on track.
3. Consider Hiring a Property Manager
If you’re uncomfortable dealing with the day-to-day policy enforcements you may want to hire a property manager. Property management companies are also helpful if you want a more hands-off approach, if you have a lot of properties, or if you own remote properties.
Property managers are professionals who know the best practices when it comes to finding occupants for your rental spaces. They are also responsible for dealing with unpleasant circumstances like late payments or evictions.
It’s their job to handle the tough conversations which are bound to come up in the rental business. A good property manager will have the right temperament and experience to do this well.
Collecting Rent in the Upcoming Months
Whatever type of payment method you choose should be the most beneficial to you and your tenant. It may be a good idea to accept a variety of payments to make the entire experience seamless, and help your tenants avoid late payments.
Remember to keep communication open with your tenants and address late payments immediately. If you don’t have the extra time or desire to deal with the nitty-gritty of rent collection, a property manager can be a very valuable resource.