Most Effective Ways to Reduce Late Payments
Dealing with tenants who fail to make their rental payments in a timely manner is not only frustrating, but it is not a cost-effective way to handle business. While there is no way to guarantee that tenants will make there payments on time, there are several steps that you can take to help ensure their payments are made in a timely manner. To help reduce late payments from your tenants, consider implementing these tips.
Tip #1: Set Up Auto-Pay
You can help to ensure your rent is paid on time by requiring all of your tenants to pay rent via an auto-deduct or auto-pay system. These systems can also be set up to automatically deposit the money into your bank account after it has been collected. Several systems for collecting automatic payments are available. The three primary systems are:
- Automated Clearing House (ACH) Debit: Withdraws money from the tenant’s bank account after the tenant signs an document giving you permission to withdraw a set amount of money on a regular basis. If the tenant does not have enough money in the account to cover the amount of the withdraw, however, the draft will bounce and you will not get paid. These transactions usually cost $0.50 to $1 per transaction and take four to seven days to process.
- Online Bill Pay: Tenants can also set up online bill pay with their banks, which bypasses the fees associated with ACH Debit. It takes longer to receive the funds, however, as the bank issues a check and mails it automatically each month.
- Collect Post-Dated Checks: Another option is to collect 12 post-dated checks for every year of a one-year lease. Then, you simply deposit the check on an agreed-upon day each month. Of course, many tenants may be uncomfortable with this process, despite the fact that it is illegal to cash a check before the date mark.
Tip #2: Enforce Policies
Your lease should include clear guidelines and expectations in terms of when rent is due and how it will be collected. It should also include the consequences of failing to pay rent on time. Failure to enforce these policies only encourages tenants to ignore them. While you may feel sorry for a tenant, letting the tenant slide “just this once” is likely to lead to more requests for an extension. If late fees are among the consequences listed in your lease, be sure to collect on them.
Tip #3: Reward Good Tenants
When you find someone who is responsible and makes rental payments on time, you should take the steps necessary to keep that person as your tenant. To hang onto these tenants and to encourage all tenants to be responsible, consider implementing a program that rewards those who pay on time. An Amazon gift card or some other sort of gift will tell your tenants you appreciate them.
Of course, thoroughly screening your potential tenants will also help to reduce late payments. Therefore, it is well worth your time to gather the necessary documents and to complete the necessary background checks to ensure you have the best tenants for your properties.