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| Electronic Rent Collection |
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The Check is On the InternetIn 2003, electronic payments exceeded check payments in the U.S. for the first time, according to the Federal Reserve. Three years later, electronic payments had increased to more than twice the number of check payments. TRADITIONAL METHODSChecks are one of the most popular ways to pay rent. The tenant writes his check and mails it; you find it in the mail, process it, and deposit it. The problem is there are so many opportunities for so many things to go wrong between writing the check and depositing it in the bank, including getting lost.In some tenants' minds, cash is a good alternative. For one reason or another, some tenants deal strictly in cash, but the drawbacks for you, the landlord, are obvious. Cash can't safely be mailed, which means it has to be delivered in person. That’s inconvenient for you and the tenant, especially if you are going to do it every month. If a tenant doesn’t have a bank account or doesn’t trust making his payment by check, he will need or want payment options. SIDE NOTE — Be aware when the time comes to sell that landlords who accept cash must keep scrupulous records. Failing to do so can negatively affect a buyer’s ability to get a loan on incomplete rent roll accounting disclosure. WIRE TRANSFERS & MONEY ORDERSOne option is a wire transfer, like the service Western Union offers. It works like this: the tenant goes to one of 55,000 agent locations in the U.S. and pays a transfer fee of approximately $9.99 (the fee varies depending on where the money is sent from, where it is sent to, and how much is being sent). He then is able to pay cash or, at many locations, use a debit card to transfer money to you instantly at another agent location."It's quick, convenient and reliable," said Kristin Kelly with Western Union. "Agents are located in grocery stores, convenience stores, and places where you're already going to be." The process for a money order is similar. The tenant would bring cash to an agent location, and for a nominal fee, the agent would issue a money order, which the tenant could then send as payment. If the money order were to get lost in the mail, the tenant could call Western Union with the money order number and Western Union would follow up. Western Union does have other payment options like online, telephone and mobile-to-mobile money transfers, but these are not available in the U.S. at this time. Kelly expects that at some point, Western Union will make them available. If it does, it could give tenants additional options. ONLINE PAYMENTSWhile wire transfers and money orders may give your tenant more options, they certainly don’t make life easier for you. In most cases, you'll still have to go somewhere to pick up the money, and you'll have to deposit it. Online payments let you collect rent wherever you can get an Internet connection. There are several ways you can have your tenant pay online, but PayPal is an online payment service that most people have at least heard of, if they haven’t already used it. "If someone wants to make an online payment, PayPal is one of the easiest and safest ways to do it," said Michael Oldenburg of PayPal. He adds that he has even used it to pay his own rent.Oldenburg said that as a landlord, you can do one of two things. The first is you can create a business account on PayPal and send out an invoice to your tenant every month when rent is due. The e-mail would include a button that would bring them online for payment. They could pay using a credit card, bank account, or their own PayPal account. Or, the tenant can log in to his own PayPal account, select the send money option, enter your email address and pay you from his credit card, bank account or PayPal account. Either way, account information remains secure. You won’t see the tenant’s financial information, and he won’t see yours. "PayPal also works really well with vacation rentals," Oldenburg added. There are many rental management packages, like Renttropolis, that have online rental payment and merchant facility as features. AUTOPAYMENT BY DIRECT DEPOSITAn online service like PayPal works well when you have one or two tenants who want to pay online. The more tenants you have, though, the more complicated things get because it's manual. Direct deposits put rent collection on autopilot. Instead of waiting for your tenant to pay online, you arrange with your tenant to have the rent automatically withdrawn from his account each month and directly deposited into your property’s account. For the do-it yourself landlord, with a few properties and limited resources, it's easier said than done because the process is more complicated than moving funds from one account to another. Before funds are transferred from the tenant's account to the property’s account, they need to be verified and deemed "good." In other words, there needs to be confirmation that the tenant’s account is open and that sufficient funds are available. This is done through the Automated Clearing House payment network. As a landlord, you can transfer your funds through the ACH payment network yourself, but you need to partner with a bank that can process ACH transactions from tenants. The bank will set up an ACH account, purchase or lease the software necessary to create ACH files and learn how to transmit files to the network, all while complying with federal regulations governing ACH transactions. "You can do it yourself, but it’s very complicated," said Ryowon Kim with ClearNow, an online service specializing in direct rent deposits. "The bank you are working with isn’t really going to help you if you have questions, and they won’t do a lot of handholding." It is possible to have funds automatically withdrawn and directly deposited into your property’s account, Kim said, but you will most likely need the help of a company like ClearNow. OTHER OPTIONSWhen it comes to rent payments, there are so many options and variations that it's impossible to touch on every service and resource available. That's good news, though, because whatever the needs of you and your tenant are, you'll be able to find the right solution. It's just going to take the time to do some research. |
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