Electronic Rent Collection
The Check is On the Internet
In 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. Americans have clearly changed the way they pay, and this trend is not limited to the checkout line at the grocery store. Increasingly, tenants are looking for options when it comes time to pay the rent.
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. Thatís inconvenient for you and the tenant, especially if you are going to do it every month. If a tenant doesnít have a bank account or doesnít trust making his payment by check, he will need or want payment options.
SIDE NOTE ó 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 buyerís 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 donít 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 havenít 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 wonít see the tenantís financial information, and he wonít 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 DEPOSIT
An 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 propertyís 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 propertyís
account, they need to be verified
and deemed "good." In other words,
there needs to be confirmation that
the tenantís 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 itís very
complicated," said Ryowon Kim with
ClearNow, an online service specializing
in direct rent deposits. "The bank
you are working with isnít really going
to help you if you have questions, and they wonít do a lot of handholding." It
is possible to have funds automatically withdrawn and directly deposited into
your propertyís account, Kim said, but you will most likely need the help of
a company like ClearNow.
Contact The LPA
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