Ways to collect rent from tenants
There are many ways to collect rent from your tenants. It's important to consider the one that best suits your needs.
The average landlord attributes 31% of their annual income to rent collection, according to TransUnion SmartMove. With stakes being high, it's no surprise that landlords find the non-payment of rent by tenants more concerning than any other risks associated with being a landlord. What many may not realize, however, is how closely tied the method of rent collection is to the likelihood of receiving it on time.
Today, there are many ways to collect rent from your tenants. But it's important for you to consider the one that best suits your needs as a busy landlord who's running a small business. Think about qualities like reliability, security, convenience and transparency. These qualities will significantly decrease the likelihood of another rental horror story about late rent payments arising.
Payment methods to consider avoiding
These rental horror stories typically start with a landlord who allowed their tenants to pay rent offline. This is why The Balance Small Business suggests that landlords avoid accepting the following types of payments:
- Cash. The primary reason you should avoid cash rent payment is due to the difficulty to keep a clear record of the payments by the recipient. When you receive rent in cash (commonly in an envelope), there's a risk of the amount not being enough.
- Check. While checks may seem like the next best option for collecting rent from tenants, they can actually be worse than cash. With cash, there is certainly a risk of not getting the full amount, but there's a high chance you're at least receiving some amount. Checks, on the other hand, have no immediate indication of whether funds are available. Once you receive a check, all you can do is cross your fingers and try to deposit it at the bank, hoping it won't bounce.
- Bank-to-Bank Transfers. In addition to offline payments, there are also certain methods of payment that are considered "online,"but still aren't considered a good practice. While it may seem convenient to allow rent to be deposited directly to your account from your tenant's bank, it's risky because it requires you to share your bank account and routing number with them. No matter how much you may trust your tenants, the risk of your sensitive information being mishandled is not worth the convenience of bank-to-bank transfers.
The benefits of online rent collection
Online payment systems have been taking over traditional payment methods since 1994, when the first online banking service emerged, according to SecurionPay. With today's online payment solutions becoming more secure and reliable, there's no question that landlords and tenants alike should be transitioning to online rent payments, especially with the range of benefits that both parties receive.
Benefits for tenants
Approximately 8.2 billion bills — or 56% of all bills — were paid online in 2017. Both older and younger tenants are accustomed to this method of paying bills, so it's important to meet their needs and expectations. The benefits of online payments are:
- Convenience — They don't need to go through the hassle of making a trip to their bank or landlord. Similar to their other bills, they just want to pay rent each month with the simple tap of a button on their phone.
- Minimized Risk — They don't need to remember to schedule or mail in their rent in advance each month because they can now schedule recurring payments with Auto-Pay. They also don't need to worry about mailed payments getting lost in transit.
- Consistency — Setting up recurring payments eliminates the guessing game of when rent will be withdrawn from their account and how much will be withdrawn each month.
- Affordability — The cost of an ACH transaction is equivalent to, if not less than, the cost, time, and energy tenants spend mailing cash or checks to their landlord.
- Environmental Responsibility — Shifting from paper to digital payments gives the tenant a sense of self-satisfaction for being environmentally responsible.
Benefits for landlords
While collecting rent online may seem like a complex and unfamiliar process catered towards making tenants' lives easier, landlords benefit as well:
- Reliability — With capabilities like automated rent reminder emails or late fees, there's a significantly reduced chance of your tenants forgetting to pay rent on time. Tenants can also set up Auto-Pay to further reduce this chance. Unlike mailed payments, online payments also don't deal with the risk of unnecessary delays such as weather, traffic, or accidents during transportation.
- Security — Online payment companies provide secure encryption to make sure all personal and banking information is kept private and never exchanged.
- Convenience — There's no need for you to sit around and wait for mail deliveries or visit the bank to deposit checks anymore because rent payments can now be deposited directly to your bank account.
- Transparency — The mystery of not knowing when your rent payment will be deposited has been eliminated. You can now track the status of a rent payment from when it's scheduled to the exact date it deposits to your bank account. Because of this, there's no longer a question of when and where payments are going to arrive.
- Credibility — Collecting rent online shows your professionalism in running a business. This naturally brings about an increased level of respect from tenants and results in a higher likelihood of receiving your rent on time.