The Ins and Outs of Rent Collection

As a landlord, your rent collection process will drive your income. When your tenants pay rent on time, the income you earn is consistent and dependable. The rent contributes to your property expenses, your cash flow, and your financial security. You need it.

If you’re working with a Merced property management company, you’ll have all the rent collection best practices in place that you need. You won’t have to worry about chasing down late rent, serving notices on tenants who haven’t paid, or going to court to file for eviction. Property managers bring in rent on time, and we do so with strict rent collection policies that are easily communicated and consistently enforced.

Even if you’re managing on your own, there are resources available to help with the rent collection process.

We are sharing some of our professional tips and best practices that can help you make rent collection automated.

Establish a Strong Rent Collection Policy

A constant and well-enforced rent collection process is absolutely necessary if you want to get your rent in on time. The first best practice we have to provide is this: create a rent collection policy and make sure your tenants understand it.

Any rent collection process must be included in your lease agreement. Don’t just tuck it into the lease agreement and expect your tenants to find it. Make a point of talking about how you’ll collect rent and what you’ll expect. You can discuss this with tenants prior to signing the lease. You can even provide detailed rent collection instructions in a separate document.

Repetition and reinforcement will ensure the rent collection policy is heard and respected.

Here’s what a strong rent collection process will include:

How Much Rent is Due

This is very basic. You probably assume your tenants know how much rent is due; they were informed of the monthly rental amount before they even filled out an application. You still need to have it in writing. You also need to include any additional payments that need to be made with the rent. Do you charge them for utilities? Are they responsible for pet rent every month? The rent collection policy needs to establish how much rent is due every month.

When Rent is Due

Most rental payments are due on the first of the month. Your rent collection policy should establish what the due date is and whether there is a grace period provided. Let tenants know on which date rent is officially considered late.

How Rent Should be Paid

Establish how you’re willing to receive rental payments from tenants. We’ll talk more about the importance of being flexible with rental payment methods a bit later in this blog. Always include the acceptable payment types in your rent collection policy. Maybe you want checks or money orders. Perhaps you’re allowing online payments or wire transfers. Cash? Be sure to state what is permitted and what isn’t permitted. Be specific; do you want checks mailed or dropped off?

Merced Late Fees and Consequences for Late Rent

Incentivize your tenants to pay rent on time.

We always recommend that you attach a late fee to any payments that come in after the due date and the grace period. This will motivate your tenants to get the rent paid on or even before it’s due. Be consistent with the late fees. Don’t charge them one month but not the other. Any time the rent is paid late, be willing to assess the late fee that’s spelled out in your lease agreement.

There’s no legal limit to what you can charge in a late fee. California law, however, implies that you can only charge a “reasonable estimate of the amount that the lateness of the payment will cost the landlord.” Best practices would recommend your late fee is around 5 percent of the rent.

Be Flexible with Payment Methods

You won’t get rent paid on time if you’re too particular about how it’s paid. By telling tenants that they can only drop off rent in person between the hours of 10am and 1pm, you’re basically guaranteeing your rent won’t be paid. Be flexible with how you’ll collect it, and offer tenants multiple ways to pay their rent.

Most tenants today want to pay online. This is the way most of us pay a majority of our bills; and commerce occurs electronically without anyone giving it much thought. Today’s tenants have little patience for writing out paper checks, putting them in envelopes, and sending them through the mail.

When most tenants want to pay rent online, you have to meet that demand. When you can provide a way for them to electronically transfer funds to you, they’ll appreciate the ease and convenience.

As Merced property managers, we have an entire platform for rent collection through our tenant portal. It’s so easy that tenants don’t even have to remember to pay rent; they can have it automatically deducted from their bank account on the first of every month. They can schedule reminders and save their payment information, whether it’s a bank account or a credit card.

You don’t need a whole software system. There are plenty of payment apps and platforms that will allow you to collect rent seamlessly by an automatic transfer.

While this is the most popular way to pay and collect rent, it’s not for everyone. Offer tenants different ways to pay, even if it’s by check or money order. You want to meet their needs as much as possible when it comes to getting the rent in on time.

Be Compassionate but Consistent

What can you do when tenants aren’t able to make their rental payment on time? Will you evict as soon as you can, or will you try to work with them to get the rent paid?

We recommend working with them. Even your most reliable tenants sometimes run into financial trouble. They might have an emergency expense they weren’t expecting, a late paycheck, or some unforeseen issue that gets in the way of their normally on-time payment.

When this happens, follow your rent collection process. Charge the late fee. Post the Three-Day Notice.

Keep the timeline for your worst case scenario, but be willing to work with your renters, especially if this is a unique situation and they feel like they’ll be able to catch up relatively quickly. If they need an extra week, give it to them. If they want to pay half of the rent now and half on the 15th, put the payment arrangement in writing and remind them that if they default, you’ll need to move onto the next steps.

Eviction should be a last resort. If you establish a good relationship with your tenants, getting rent paid on time should not be difficult.

When the tenants are unable to pay and they believe it will be an ongoing issue because they’ve lost a job or suffered a divorce or happen to be facing a serious medical issue, you’ll want to talk about what’s best for everyone. You don’t have to evict a tenant who cannot continue to pay rent; but, you do want to get them moved out of your property so a more reliable tenant can be moved in.

Screen Merced Tenants for Easy Rent Collection

The tenant screening process may not seem like part of your rent collection process, but it is an important way to manage how rent is collected. After all, the best way to deal with late rent is to avoid it.

Well-screened, qualified tenants pay rent on time.

How do Merced property managers determine whether a potential tenant is likely to pay rent? There are a few specific indicators that help us screen tenants for reliability:

Credit. It’s important to establish some basic criteria when it comes to the credit worthiness of an applicant. More importantly, we’ve found, are the red flags that might give you the idea a tenant could be unreliable with rental payments. For example, prior evictions, especially recent evictions, might indicate that there were problems with rental payments. Any judgments or collection activities from former landlords and apartment communities might tell you that there is overdue rent.
Income. You want to make sure your applicant earns enough money to cover the monthly rent. Best practices in Merced property management says that your tenant should earn at least three times the monthly rent. More is better.
Rental history. By talking to current and former landlords, you can ask if the tenant you’re considering paid rent on time. If they paid late, find out how often that occurred, and how quickly they caught up.

Tenant screening touches everything you do when it comes to leasing and managing your property. Take the time to do a thorough job of finding the right tenant.

We can help you with your rent collection process. If you’d like some additional help or support with getting that rent in on time, contact us today.

River Drive Properties provides effective and professional property management services in Merced and the surrounding areas including Fresno, Modesto, Tulare, and Turlock. We have extensive experience with both single-family homes and multifamily properties.