Collecting rent on time is one of the critical factors of being a landlord. However, it’s often overlooked by most landlords. And late rent payments are one of the most stressful things about being a landlord.
If there are late payments, it will also create another dilemma on your side as a landlord. It will also affect the fee for your vendor or contractors.
Setting up ways in collecting rent on time and a collection policy is something that the tenant and landlord should agree on before signing the lease. And it will help you to get the rent payment on time and possible financial headaches.
In this article, List down ways to collect rent on time and reduce late payments.
Here are The Ways in Collecting Rent and Reduces Late Payments.
1. Screening Tenants
Tenant screening is one of the crucial steps in reducing possible late payments. The main reason for tenant screening is to assure that they can afford to pay the rent, and have some background if the tenant has a history of paying rent on time and doesn’t have any lease violations.
You should pay close attention to the financial situation of your potential tenants, such as:
- tenant’s income
- credit report
Authenticating potential tenants’ income will ensure that they can afford the agreed rent amount. And with regards to the credit report, it will also help you to have evaluated if the potential tenant has a history of late payments or if they have considerable debt. Moreover, you can also check if a tenant has been through an eviction lawsuit.
2. Create a Payment Reminder System
To ensure that the tenants will be aware of the upcoming payments, you must have a payment reminder system. Generally, it would be best to remind your tenants three days before the payment is due. And after the payment is due, you should tell them that the payment is late a day after.
Sending regular payment reminders will increase your cash flow. And you will not wait for late payments as some tenants can have many legitimate reasons why they miss their rent.
Moreover, if you send out a payment reminder, it’s better to have a thank-you email for on-time payment. It will ensure that tenants positively view the reminders.
3. Set up an Online Rent Collection Method
If you don’t want to receive late payments, it will help if your tenants pay them online. It’s easier for you as a landlord to collect rent online as well as the tenants all conveniently pay their rent online. Collecting rent online will smooth run the rent payment process.
Nowadays, almost everyone is busy, and most bills are being paid online. So it would be best if you would also leverage electronic payments for rent as a win-win situation for you and your tenants.
There are many ways to collect rent online, like the rent collection app or software.
4. Increase Communication with Late Payers
It’s essential to talk with tenants who have a hard time paying full rent payments. There are times that the tenant forgot, having a few misunderstandings, or some situations like:
- lost of job
- hospitalization
- other life-changing events
You also need to explain the late fee charges, the amount due, and the rent payment deadline to the tenants.
And if there’s a tenant who is religiously paying late rent, you should reach out to that tenant personally. Try to find out if there’s a specific situation that restricts the tenant from paying on time. And if there’s a legitimate reason, you may also propose to change the due date to avoid late payments.
5. Create a Policy for Late Rent Fees and Grace Periods
The lease agreement should include a late payment penalty clause to encourage the tenants to pay the rent on time and avoid late payments. However, late fees must be conforming to the local laws.
Like in New York City, late fees can only be charged if it’s more than five days after the due date indicated in the lease. And the late fee should be no more than $50 or 5% of the rent.
Moreover, most successful landlords also offer tenants a grace period before the late fee comes in.
In some instances, tenants need to wait for the checks to clear or ACH bank deposits. Allowing a few extra days for your tenants to pay the rent can help to strengthen your relationship with your tenant.
6. Give Incentives For Paying Rent on Time
Another way to encourage tenants to pay on time is to give them an incentive. They will appreciate giving them rewards for paying on time even though it was included in the lease. It’s also crucial for you to keep your tenants happy and retain them as a landlord. You can offer some incentives, such as:
- A gift card a year or every time they renew the lease.
- Offering rent reduction if they make an on-time payment for consecutive months.
- Early payment discount.
- Upgrade the appliances to those tenants who always pay on time regularly.
7. Improve Your Tenant Screening Process
If multiple tenants make late payments, your tenant screening process needs a few revisions. You should ensure that you’re calling references and previous landlords, confirm proof of employment, set guidelines for the required minimum income to lease, and others.
Revising your screening process will ensure that you choose high-quality tenants that can afford the monthly rent payment.
8. Review Rental Agreement Terms
It’s essential to review the terms and clauses of rental agreements, particularly if you always wait for rent payments. Most of the reasons are tenants aren’t aware of the following:
- late fees
- payment dates
- grace periods
- discount clauses
Here are the most crucial details of the rental lease agreement to guarantee timely payments:
- Amount of Rent – make sure that the full rent amount is clearly stated in the lease agreement. It would be best to charge fair rent within the local laws.
- Due Date – Outlined in writing the payment dates for paying full rent, grace period, and if there are instances if the due date falls on weekends or holidays.
- Payment Options – You should state in the rental agreement if you accept money orders, paper checks, or online payments only.
- Late Fee Charge – The late fee should adhere to the local laws.
9. Hire a Property Manager
If you have a rough patch collecting rent payments and dues or don’t have time to run down late payments, it would help hire a property manager.
Getting an experienced property manager can help you implement a secure and robust payment system. And will ensure that there’s a consistent cash flow that moves forward and give you worthy competence in reducing late payments in the future. They can also help you with other tasks such as:
- tenant screening
- maintenance schedule
- lease management
- deal with issues
- handle evictions
The Bottomline
You have to be stringent in collecting late payments. And you must always think that rental is a business even though you have a friendly relationship with your tenants.
A couple of days late can turn into weeks, and later on, it can cause a severe issue in your rental business.
So if you want to have a stress-free and comfortable life, why not consider hiring ProRealty Property Management.
