Collecting the Rent: What Form of Payment Should You Accept?
By John Nuzzolese
In today’s changing times, technology plays a larger role in the way we do business. More options are available to us in banking, communication and in collecting the rent from tenants.
Just as every property is unique, so is every landlord and his business. How landlords and property managers choose to collect rent varies greatly depending on experience and circumstances. There are a number of payment methods available for you to choose from when it comes to collecting rent from your tenants.
You can accept your rent:
Accepting rent payments in cash normally means personal contact with the tenant, which can be quite involved at times. You may be thinking, “Cash is the simplest form of payment”, but in reality it can be a royal pain in the neck! Think about the pros and cons and you decide.
The Pros of collecting rent in cashYou don’t have to worry about checks clearing
You don’t have to wait for funds to clear
The Cons of collecting rent in cash
Going to the tenant to collect cash. You have to (or have someone else) meet personally with the tenant every month to collect your rent. This can sometimes turnout to be a time consuming session as it is an opportunity for the tenant to occupy your time with questions, complaints and/or demands concerning the rental property.
Travel time and expense. What if your rental property is more than a quick hop away?
Missed appointments. Have you ever heard of a tenant missing an appointment to pay the rent? How about just being late?
Having the tenant come to you. Some landlords have wised up and don’t allow the tenants the ability to waste their time on missed and late appointments and cost gasoline and time driving to rentals to get stuck talking to each tenant about their wish-lists, etc. Instead, the tenant comes to the landlord’s home or business with the cash. (They might just want to come in and chat sometimes.) For landlords who prefer their tenants to have 24 hour access to them at home 7 days a week, weekends and holidays, this is a great option!
Count the money. Remember you should count the cash and make sure it is all there! Don’t forget to give the tenant a receipt.
You can accept your rent:
Collecting rent by check is the method most landlords prefer. It also has its pros and cons, but so does every method.
The Pros of collecting rent by check
Checks can be mailed.
Tip: Professional landlords have tenant mail the rent to a PO box or a management office, not their home.
It is illegal to pass a bad check.
It is easier to prove rent was paid late. (By the post mark or even the date the check was written)
You know where the tenant banks. (This can be useful in the event you have to recover money from the tenant in the future.)
The Cons of collecting rent by check
Checks bounce when the tenant doesn’t have the money in the bank
Bounced checks incur bank fees that you must then collect from the tenant with a Dishonored Check Notice
Checks can be stopped by the tenant even after being deposited.
Accepting your rent by Money Order
The Pros of collecting rent by Money Order
Money orders are not likely to bounce
Money orders are difficult to cancel
They are easy to obtain at the Post office, 7/Eleven, Walmart, many drug stores, and any bank.
They can easily be mailed just like a check, so you do not have to see your tenants in person every month in order to get the rent.
The Cons of collecting rent by Money OrderI got nothing... Sorry. Oh yeah…
May be inconvenient for some tenants to go out and buy the money order.
Electronic Rent Collection: Direct Deposit
More and more landlords are making the arrangements with their banks (with their tenants’ cooperation) to automatically withdraw a monthly sum from the tenant’s bank account to be transferred into the landlord’s bank account on a set day every month. This can be an effortless method of rent collection as long as the tenant has the required money in the bank at the time of the transfer. It is an even better situation for the landlord when the tenant is qualified for sufficient overdraft protection.
The Pros of collecting rent by Automatic WithdrawalNo effort to collect when all is going well.
Easy to monitor online.
Not that difficult to set up with most banks
The Cons of collecting by Automatic WithdrawalMonthly bank fees to maintain the account
You have to monitor the account to make sure the rent was transferred
Electronic Rent Collection: Credit and Debit Cards
Many property management companies and even private landlords are accepting the payment of rent by credit and debit cards. Access to this is normally restricted to businesses with merchant accounts to be allowed to accept the major credit cards, but now in today’s high-tech environment, just about anyone can have a PayPal account to enable them to accept credit card payment.
The Pros of collecting rent by Credit and Debit Cards Even if it isn’t your primary method of collecting the rent, PayPal could enable the tenant to use his credit card(s) to pay you when he otherwise couldn’t pay the rent.
Many management companies have websites that make it easy for tenants to pay their rent online. This is a super convenience for people who are used to paying their bills online.
Online payments save the time of mailing and can be instantly verified.
You can use PayPal for billing and Send invoices online, even if you don’t have a website. You can also include a payment button in any email you send using Outlook.
I strongly recommend ClearNow Electronic Automated Monthly Rent Collection (Help Tenants Build Credit while getting paid electronically!)
Once enrolled with ClearNow®, your Tenants may opt-in to report rent payments to Experian RentBureau!
The Cons of collecting by Credit and Debit Cards By making it easy for the tenant to pay rent by credit card, you could unknowingly have tenants who are headed towards eviction while depending on limited credit to stay afloat.
Transaction fees. You would be required to pay a transaction fee each time you accept this method of payment. PayPal's transaction fees range from 1.9% to 2.9% + $0.30 USD. This is not a bad deal considering you do not have to pay any other bank fees or other fees associated with having a merchant account.
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