26 Aug
Collecting rent is a crucial part of managing a property. There are several ways that you can collect rent that will make the process smooth and efficient. Establishing a primary method of collecting rent makes it easier to keep track of who has already paid and who is behind on rent each month. Here are some of the best ways to collect rent for free.
Things to Consider
There are a few factors to consider when choosing a rent collection method:
The number of tenants/units. Take into consideration the most efficient way to collect rent with the number of tenants you have. If you have a large number of properties, you will want a method that will streamline the process of collecting rent each month.
Distance from properties. Your distance from the properties can determine what method is most time efficient and cost effective. If you live far away from your properties, consider how much time it would take to pick up a payment compared to having the payment sent to you, whether through the mail or online.
Interaction level with tenants. The type of method you choose should reflect how much interaction you want to maintain with your tenants. If you would like to keep interaction with tenants to a minimum, it’s important that you choose a method that best fits your preferences.
Comfort level with technology. If you are already using technology that can integrate online payment methods, an electronic method for collecting rent might be most suitable for you. If you don’t like using technology, there are traditional alternatives that are just as efficient.
Different Ways to Collect Rent
There are two main categories that methods of rent collection fall under: traditional methods and electronic methods. Listed below are the benefits and disadvantages of each method.
Traditional Methods
Cash. Cash is a very direct payment method and can be used instantaneously. Unfortunately, cash is difficult to document or track since it leaves no paper trail. This has the potential to cause payment disputes or create legal problems. If you decide to use cash as your rent collection method, make sure you determine the safest way to collect it. Cash can easily get lost in the mail, so in-person exchanges are the ideal form of collection. You can schedule a time to pick up the payment from your tenants or give them a secure location to drop off their cash.
Checks. Checks are straightforward and more secure than cash since checks can be documented through bank statements. You have several options when it comes to collecting checks, such as drop off/pick up or mailing. However, checks are not as rapid as other methods. Checks can easily get lost in the mail and have the potential to bounce if the tenant does not have enough money in their account.
Money Order. Money orders can be bought at banks, post offices and some convenience stores. Although this is a secure form of payment that leaves a paper trail and is a tangible document, it is not the most ideal for long term rent collection since tenants must go into an establishment each month in order to buy a money order. You can learn more about money orders by checking out this article by The Balance.
Electronic Methods
Electronic and online methods of rent collection have become very popular recently due to the development of technology and innovative platforms.
Property Management Technology. Property management technology will streamline the entire payment collection process for you. It’s a great way to collect rent for free. For example, you can collect recurring rent, create payment plans and set up automated late fees using Particle Space’s free platform.
ACH Payments. The Automated Clearing House, or ACH payment networks is a financial system within the U.S. that allows electronic credit & debit transfers between individuals and larger institutions. They are offered through nearly every bank and can be especially useful to landlords (and tenants) because a transfer can be automated each month so that there are never any late payments. ACH payments are not instantaneous and take a few days to process, so this should be taken into consideration when setting up the payment method. The biggest disadvantage of this method is that you must exchange bank information, such as routing and account numbers, only once at the beginning in order to set up ACH payments.
Peer to peer. Peer to peer methods, such as Venmo and PayPal, have become increasingly popular in recent years. Although these mobile payment services are easy for tenants to use, they are not very landlord friendly. For both Venmo and PayPal, there are usually transaction fees for business accounts that can slowly pile up each month. Using a personal account for these types of transactions is illegal under PayPal’s Terms & Conditions, so landlords cannot get around the transaction fees. Transferring the funds can take a few days to process as well, and Venmo in particular does not allow payments over a certain amount. In addition, you have to request and check that tenants have paid each month- there is no automation with PayPal or Venmo. If you have to charge late fees, you have to do it manually and it can take more time than necessary.
What to Do if They Don't Pay
If a tenant is behind on paying rent, the best way to handle the situation is to communicate with the tenant to identify the reason they cannot pay rent and create a plan so they can catch up. You can create your own payment plan or you can set up an automatic payment plan using Particle Space’s free platform.
If you are seeing a decrease in rental income due to COVID, check out this article about how to protect your rental income during COVID-19.
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