It is essential that your tenants pay their rent promptly. Not only does this prevent costly late fees, it also helps you avoid stress and confrontations.
Landlords may hire a collection agency to recover unpaid rental debt. However, it’s critical that the collection agency you select has proven tenant debt recovery strategies and industry-relevant expertise.
1. Automate Late Fees
Many landlords get in a hurry to sign a lease with a new tenant and overlook red flags that can end up costing them more money. A sensible thing to do is to speak with the tenant and try to work out a payment arrangement. This may mean granting them more time to pay, waiving the usual late fees or allowing them to pay partially now and then the rest at a predetermined date.
Landlords can also use their online rent collection system to provide tenants with recurring ACH payments or the option to pay via credit/debit card. Typically, it takes 5-7 days for ACH payments to enter the landlord’s bank account. However, landlords can offer their tenants expedited ACH processing to speed things up.
2. Set Up an Online Payment System
Traditionally, rent payments are made by check. This requires tenants to mail or drop-off the payment, and landlords have to physically record it and deposit it in the bank. This can be time consuming and expensive, especially when you manage multiple properties.
Online rent payments streamline the process, saving you and your tenants valuable time. Tenants receive automatic reminders and recurring payment scheduling, which can help prevent forgetfulness. You can also benefit from faster processing of transactions, and a secure system that allows you to pass through transaction fees to tenants or include them in your rental rate.
Plus, you can use online rent collection to reward tenants for consistent on-time payments with credit reporting – helping them build up a good rental history and improve their credit score.
3. Put Late Fees in Writing
While it’s tempting to give tenants leeway and let a few late payments slide, this can lead to more problems down the line. For example, if a tenant falls too far behind, they could end up in the eviction process with more fees and costs associated with that.
The first step in dealing with a late payment is to have the terms in writing. This allows the landlord to document any attempts to collect on the debt and also complies with the laws regarding late fees.
It’s important that the late fee amount is reasonable. Landlords can consult with an attorney to determine the appropriate amount. A common method is to offer a grace period followed by a flat fee for late payments. This gives the tenants more incentive to pay on time.
4. Charge Penalty Fees
The old adage ‘not if but when’ often rings true in the world of property management, and it’s important to be prepared for the inevitable. When your tenant fails to pay rent, you can follow your local and state regulations to determine your options for pursuing collection.
If you decide to hire an efficient tenant debt collections agency to collect your back rent you should provide them with a copy of the tenancy agreement and any legal judgments. The agencies can then attempt to garnish wages and bank accounts.
If the debt collector’s litigation misconduct in your first lawsuit results in a second one that the landlord wins, the tenant can be awarded attorney fees.
5. Remind Tenants of Late Fees
A lot of things can keep a tenant from paying rent on time. It could be a holiday, the bank may be closed, they might have to work late or travel. Before imposing a standard late fee, landlords should try to find a solution that benefits both parties.
This could mean giving the tenant extra days or weeks before imposing late fees, waiving them altogether, or even allowing them to pay partial rent now and the rest at a later date.
Enrolling in a hassle-free online rental management system allows landlords to set automatic reminders, collect rent online, run credit reports for tenants, and screen tenants. This, combined with consistent late fee enforcement, can help promote on-time payments and reduce the likelihood of costly evictions.
6. Issue a Notice to Vacate
When a tenant fails to pay their rent or breaches a lease or rental agreement, written notification must be served. The specifics of this notice will vary from state to state.
Landlords can use this document to inform a tenant that they intend to terminate their lease and move out within 30 days or whatever period of time is specified in the landlord’s lease. This letter should be polite and professional but also clear that a lease is being terminated.
It should also include the date on which the notice was sent. This is important to ensure that the tenant received the document and can respond in a timely manner. Also, it’s helpful for the landlord to have the tenant’s contact information and forwarding address in case the security deposit needs to be returned.
7. Inform Tenants of Tenant Credit Reporting
Tenants are motivated to pay their rent on time when they know that doing so helps them build a credit score. When landlords report rent payments to credit bureaus, it puts a tenant’s financial obligations on par with their other credit cards and auto loans.
If a tenant is unable to afford to pay their debt in full, they may be able to successfully seek statutory fees under the UDAP or state consumer protection statute. They also may be able to successfully set aside a default judgment, which will void wage garnishment and bank account levies.
Landlords often face a lot of stress when it comes to collecting past-due rental payments. By following these tips, they can help make their collection process more efficient and ensure that they receive all of the money they are owed.