Accounting is tricky enough as it is. Throw late payments into the mix, and accounting can become really challenging for landlords and property managers. If payments don't come in on time, it makes it harder for you to pay vendors—and yourself. You might need to put off repairs. You might inadvertently overdraft your bank account. Late payments can create a vicious cycle.
This year, we have made improvements to make it a priority to start collecting payments on time. Now is the time to halt late payments once and for all and using the resources available to us to make sure tenants are becoming reliable with rent.
"Easier said than done," you might be thinking. Well, we never said it would be easy—but here are some strategies that we use to make it easier.
#1: Payment Reminder System
We have implemented a payment reminder system to ensure that residents are aware of upcoming payments. As a general rule of thumb, we like reminding people 3 days before a payment is due, the day that a payment is due, and then a day after the payment is due telling them that their payment is now late.
#2: Increase Communication with Late Payers
If we have a resident who is routinely late in submitting payments, we reach out to that person directly and try to figure out if there's a special circumstance that prevents that person from paying on time. For instance, they might not receive the paycheck or child support payments that they use to pay their rent until after the rent is due. In circumstances like these, we may propose an agreement where that resident pays us on a slightly different timeline than others.
#3: Collecting Late Fees
Our leases stipulate that overdue payments will be subject to a late fee. We implement our late fee policy and collecting fines. Late fees might come as a jolt to some—but can be exactly what's needed to get people to pay you on time. We have recently started charging tenants 10% of their rent as the late fee to encourage tenants to pay on time.
#4: Electronic Payments and Making them Automatic
This is the best way to collect rent. We're a big fan of our software that allows residents to make payments online. In this day and age, we're all busy. Having to physically get a money order, track down a stamp, and trek to the post office to mail a payment is a hassle. Some will certainly prefer to make payments that way; but by leveraging electronic payments we make it easier for the tenants to pay their rent.
#5: Resident Screening Process
There will always be one-off cases of residents paying late. However, if sometimes we can run into multiple residents that are making late payments more often than not. When we screen our tenants, we make sure that we're calling landlord references, confirming proof of employment, setting guidelines for minimum income required to lease, etc. This helps to ensure that we're choosing high-quality residents who can afford to make their payments each month.
#6: Don't Excuse The Behavior
Don't shrug off late payments. If we start allowing residents to make late payments, a few days late here or there could soon turn into weeks. Late payments can be seriously detrimental to your bottom line—so we have brought on a new member of our team – Kristy! She has been our hands on person with collecting outstanding rent and making sure the tenants have been accessing the resources that we have available (MACCH, ENCAP, etc.). Since she has joined our team we have had multiple tenants apply for emergency rental funds and approved within weeks.