Collecting rent on time from tenants is the biggest pain point for most landlords. Late rent payments disrupt your cash flow and cause unnecessary stress. You may also struggle to cover mortgage payments and pay bills when rent doesn’t come in on time.
The solution? Know how to collect rent from tenants on time every month. This ensures healthy cash flow and boosts your bottom line.
Rent collection should never be a game of “catch me if you can.” After all, chasing tenants for late rent is never as much fun as chasing after Fido, who’s run off with your prized possession. Tenants need proper training to deliver rent on time. And training starts with implementing the correct methods and tools to collect rent every month.
What are the best ways to optimize the rent collection process and avoid late or missed payments? We’ll examine the best methods to collect rent and discuss traditional ways of collecting rent versus online rent payments. In the end, you can decide on the best solution for you and your tenants.
Tenant Rent Collection Methods: Traditional vs. Online
Your chosen payment method significantly impacts efficient rent collection. Many landlords still rely on paper checks, whereas there is a growing shift toward using online platforms or ACH bank transfers. Let’s compare these methods to find out how to collect rent from tenants on time.
Traditional methods
Traditional methods for collecting rent are cash or a paper check. What are the pros and cons of these methods?
- Physical checks: The most common method is for tenants to mail rent checks. This is convenient for them, and the check is delivered to you. However, this process can become time-consuming if you have several rental properties. For example, you must drive to the bank, deposit the money, and wait for the checks to clear. Then you deal with bounced checks and the old excuse of “The check is in the mail, it must be lost.”
- In-person rent collection: Collecting cash in person is not an acceptable payment method. There are several reasons why. First, you should never collect cash payments because it’s unsafe. Second, you put yourself in the “chasing rent” category. Third, it’s ineffective and wastes your precious time.
- Tenants drop rent off at your home: Collecting rent in person at home is another big no-no. Giving out your home address to tenants is never a good idea. Do you really want an angry tenant showing up on your doorstep because you sent a late rent notice? Remember, you’re running a rental property business, not a hobby. So, try to keep your business and personal life as separate as possible.
In summary, while traditional rent collection methods like physical checks may be convenient, they also have several drawbacks. They are inefficient for timely rent collection, especially when modern methods exist.
Online rent collection
Several online payment solutions can help ensure consistent rent collection. These methods range from online banking transfers to money transfer apps and dedicated rent collection platforms.
Let’s look at the best online rent collection systems to streamline your rental business and ensure a steady income from your properties.
- ACH payments: This system simplifies the rent collection process. You no longer must process physical checks or cash. Also, automatic payments reduce the administrative burden for you and your tenants. However, it’s a good idea to check out bank fees for setting up and accepting ACH transfers.
- Direct deposit: Getting tenants to set up direct deposit can help ensure regular rental income. A direct deposit is a form of ACH transfer where the money arrives directly in your bank account. While direct deposits are free for the sender (tenant), you may have to pay transaction fees to receive the money.
- Online rent payment platforms: One of the best ways to collect rent is to use a rent payment app. In many cases, these rent collection platforms do more than facilitate rental payments. They often include late payment fee collection, handling maintenance requests, managing security deposits, and reporting rent payment history to credit bureaus.
- PayNearMe: Tenants who don’t have a bank account can use PayNearMe to pay monthly rent in cash. They use their unique card to pay at a local ACE Cash Express, 7-Eleven, or similar vendor. The tenant receives proof of payment, and you get instant notification of money in your bank account. This method to collect rent is free for landlords and costs tenants a small fee.
- Cash apps: Money transfer apps like PayPal, Wise, Venmo, Apple Pay, or Zelle are convenient ways to send and receive money. But are they a way to collect rent from tenants? These peer-to-peer payment services are not the best options for rental property owners. For example, you cannot block partial payments during an eviction process. Also, transaction fees can be costly if you have many rental properties.
Online rent collection is convenient and efficient, making it popular among landlords. However, not every option will work for you, depending on your business and tenants. Therefore, you must decide which is the most suitable to ensure efficient rent collection.
Which Rent Collection Method to Choose?
Knowing how to collect rent efficiently requires balancing convenience and efficiency for you and your tenants. Tenants may prefer sending rent by mail because it’s easier for them. On the other hand, online payment collection methods are quick, convenient, and secure.
Here’s a comparison of the various rent collection methods.
| Method | Cost* | Secure | Convenience* | Recurring payments? |
Automatic late fees? |
Instant notifications? |
Block partial payments? |
Report to credit bureaus? |
Property management? |
| Paper checks | Free | Moderate | Moderate | No | No | No | Yes | No | No |
| In-person collection | Travel to properties | Low | Low | No | No | No | Yes | No | No |
| ACH payments/ direct deposit |
Low fees | Yes | High | Yes | No | Yes | Yes | No | No |
| Rent payment apps | Low fees | Yes | High | Yes | Yes | Yes | Yes | Yes | Yes |
| Cash apps | Low fees | Yes | Moderate | No | No | Yes | No | No | No |
| PayNearMe | None | High | High | No | No | Yes | No | No | No |
* The cost and convenience are from the landlord’s perspective.
Common Concerns About Collecting Rent From Tenants
Switching to online rent collection methods can raise concerns for landlords. For example, you may worry about security, handling late payments, and compliance with local and state rental laws. Additionally, you may need to convince tenants to switch to an online rent payment service.
Let’s address common concerns about how to collect rent from tenants using modern methods.
Security and privacy
Ensuring the privacy and security of tenants’ personal and financial information is vital. As a landlord, you must adopt securely encrypted payment methods and adhere to data protection regulations to prevent fraud and identity theft.
The good news is that online payment platforms offer robust security measures. These platforms use encryption technology to protect sensitive information like bank account numbers and credit card details. They also adhere to industry regulations like the Payment Card Industry Data Security Standard (PCI DSS).
Getting tenants on board
One of the biggest challenges is convincing tenants to switch to an online rent payment system. Tenants may be hesitant to start using a system they’re unfamiliar with. Also, as of 2022, reports indicate that 58% of the 24 million offline households don’t see the need to be online, and 18% of these say they cannot afford a home internet service.
Clear communication about the benefits of paying rent online is critical to make the transition. Explain its convenience, like recurring payments, proof of payment, and rent payment history, as well as no more paper checks getting lost in the mail or ending up in the wrong hands.
Integration with accounting systems
Rent collection software often features seamless integration with accounting systems. Think of how much time you save on lodging paper checks. Not only does this cut down on administrative work, but it also minimizes the risk of errors.
Handling late payments
Any landlord knows that late payments disrupt cash flow and add stress. What can you do if your tenant misses a rent payment?
Effective communication is crucial in resolving disputes. Therefore, try to understand why the rent is late. However, you must also understand local landlord-tenant laws and check the lease agreement to take appropriate action.
In most cases, you should charge late rent fees. Of course, this may sound callous if the tenant is facing a temporary hardship. But it will help to ensure on-time rent payments in the future.
Here are a few tips on resolving issues with late payment of rent:
- Have a clear late fee policy in the rental agreement.
- Encourage the tenant to borrow money or use a credit card to pay rent.
- Offer a partial payment agreement if appropriate.
Payment verification
Online payments resolve the problems of payment tracking and verification. We all know that processing paper checks is time-consuming and cumbersome. Also, the tenant doesn’t know when or if you receive their check in the mail. This process can lead to misunderstandings and late rent notices.
Online rent payment systems benefit both the tenant and landlord, as both parties can quickly and easily view payment records, ensuring the rent is paid on time.
Fees and costs
Managing the costs associated with different payment methods can be a concern. Tenants may refuse to use a payment system that incurs extra transaction fees. Additionally, some online payment portals make it free to send money, but charge fees on receipt.
Therefore, evaluating the cost-effectiveness of various payment options is wise to ensure they don’t impact your rental income.
Compliance with laws
Navigating local, state, and federal laws can be a nightmare for anyone running a rental business. So it’s vital to keep up to date on regulations regarding rent collection, late fees, and eviction processes. Also, going online means complying with data protection laws and ensuring your systems are secure.
Successful landlords realize the importance of hiring a lawyer specializing in landlord-tenant law. Additionally, digital payments and electronic file storage are safer than traditional methods if you have the proper security measures.
Tips for Encouraging On-Time Rent Payments
Regular rental income is your bread and butter, so ensuring you collect rent from all tenants every month is crucial to your bottom line. What are the best ways to ensure timely rent payments and maintain a successful rental business?
Let’s examine a few ways to keep your rental cash flow healthy.
Clear communication
First, you must have a clear, unambiguous rent collection policy in the lease agreement. Terms of the lease agreement regarding rent payments should include:
- The monthly rent amount
- Rent due day
- Approved payment methods
- Grace period for late rent payments (check local rental laws)
- Late fee policy
- Rent increases
Before you draft the lease agreement, have a real estate attorney check it for compliance with local, state, and federal laws.
Tenant screening
Tenant screening is critical to ensuring on-time rent payments. Remember, letting a tenant into your rental property is easy, but it’s much harder to get them out, even if they stop paying rent. Therefore, due diligence is crucial when screening tenants.
Essential points in the screening process include:
- Employment history
- Rental background check, including previous evictions
- Credit history
- Income at least three times the rent price
Send reminders to tenants
Let’s face it: We’re all busy—including your tenants. So, a gentle reminder that rent day is approaching can help minimize late payments. You can set up automated emails or SMS messages or use the function in a rent payment app.
Offer incentives for on-time rent payments
Encourage tenants to make on-time payments by offering incentives. Here are a few ideas:
- Offer tenants a discount for punctual rent payments for a certain number of months.
- Knock $20 off the rental price when they pay before the due date.
- Set aside $5 each month when they pay rent on time, and reward them with a gift card when they renew their lease.
Set up automatic rent payments
Encourage tenants to set up recurring monthly payments through their bank or a rent collection platform. Automatic payments ensure you can collect rent every month without reminding the tenant.
Credit reporting to encourage tenants to pay rent on time
Offering to report on-time rent payments to credit bureaus is an excellent way to encourage on-time payments. This incentive benefits tenants who want to build their credit history. It can also incentivize them to switch to an online rent payment app.
Enforce late fees
Charging late fees per the rental agreement is always a good idea. Although it may be tempting to waive the fees, you risk allowing bad habits to develop. Also, if you waive the fees for one tenant, you may have to waive them for all the tenants in a multifamily property.
Of course, individual tenants may have extenuating circumstances. If they are excellent tenants who always pay on time, you may decide to cancel the late fee.
Offer flexible payment options
The traditional method of collecting rent on the first of the month may not work for all tenants. Many self-employed people work in the gig economy and don’t receive wages on a specific day. So, offering to split rent payments into two or three installments a month may help you collect rent regularly with no late payments.
Offer multiple payment options
Statistics show that consumers are shifting to faster electronic payment methods. Therefore, offering options to pay rent by credit or debit card can boost on-time rent payments. This option can allow tenants to reap the benefits of credit card payments such as cash back, reward points, and bonuses.
Partial rent payments
Unfortunately, some good tenants get into temporary financial difficulty. Rather than serve an eviction notice, you could work out a mutually agreeable payment plan. This option could allow tenants to get back on their feet while you avoid a costly eviction process.
Offering partial rent payments isn’t suitable for every tenant, but it can help you keep good tenants experiencing short-term cash flow issues. As always, put everything in writing to communicate the terms for paying rent over an extended period.
Use a rent collection app
Property management software can streamline the rent collection process. Chances are that most of your tenants already use smartphones. A rent payment app has features like automatic payments, instant notifications, and easy payment tracking, making collecting rent from tenants on time easier.
Final Thoughts
Learning the art of rent collection is crucial for running a successful rental business. Implementing efficient, effective rent collection strategies can minimize stress, improve cash flow, and help maintain a positive relationship with your tenants.
Switching to online payment systems helps streamline the rent payment and collection process. To simplify the process, use clear communication, incentives, rent reminder emails, and recurring rent payments. This way, you can effectively collect rent from tenants on time every month.
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In The Self-Managing Landlord, Amelia McGee and Grace Gudenkauf share the secrets of efficient property management, tenant screening and onboarding, and scaling your business—all to help you break free from the 9-to-5 grind and create lasting wealth through real estate.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
