One of the keys to running a successful rental business is collecting rent from tenants on time. At first glance, it may seem like a straightforward and mundane task. But many landlords can also attest to the fact that it can also be frustrating and tedious.
Sometimes, tenants pay their rent late (or downright refuse to pay). Other times, rent payments get lost in the mail or fail to process through online banking. And let’s not forget that managing payments, late fees, and security deposits can be stressful if you lack the time to properly track and document everything.
For these reasons, it’s crucial to establish an efficient, reliable, and cost-effective method for collecting rent from tenants. And most importantly, one that is suitable for your particular rental business.
In general, you can collect rent using one of four methods:
Here’s how each works in practice and its advantages and disadvantages.
If you choose this method to collect rent from tenants, you’ll most likely receive payment in the form of a cheque.
Receiving rent payments through the mail is convenient because it doesn’t involve any active collections process. You simply wait for the cheques to arrive at your home or office. There’s no need to travel to multiple locations to gather payment from tenants.
However, you’ll need to exercise patience when dealing with mailed cheques. It can take several days for the post office to deliver the mail. And then, you must travel to your bank to make the deposit and wait for the funds to settle and appear in your bank account. The whole process could take a week or longer.
And, of course, mailed cheques can potentially get lost in transit, which will delay payment further.
In addition, you must also contend with the risk of a cheque bouncing. While you can mitigate this risk somewhat by requiring a certified cheque, your tenants may not appreciate this policy, as banks usually charge a fee to prepare one.
A bank draft is another option to guarantee payment upon deposit. However, not all financial institutions offer bank drafts, and serious problems can ensue should this type of document go missing.
You have numerous options at your disposal when it comes to collecting rent online. Here are the most common:
Suppose you own a large number of rental properties. In that case, direct deposit can be an efficient and cost-effective way to collect rent from your tenants.
However, setting up direct deposit can be a hassle, especially for a small rental operation. Your tenants will also need access to online banking to initiate a payment, and you’ll have to supply them with your banking details. The latter requirement poses security and privacy risks.
A bank-to-bank transfer system also lacks various features to verify, track, and manage your payments.
E-Transfer is a Canadian electronic money transfer service operated by Interac. It works as follows:
E-transfers are fast and reliable. It typically takes a day for the funds to arrive in your account, and neither you nor your tenants need to exchange banking details. Most banks also offer the service for free.
However, this payment method does have its drawbacks. Transactions can be tough to reverse if the tenant accidentally sends the money to the wrong email address. And E-Transfer fraud is quite prevalent, too.
Peer-to-peer (P2P) money transfer apps allow you to send and receive funds directly to others, functioning as a middleman. These apps are flexible, user-friendly, and offer more features than e-Transfer.
To enable funds transfers, both the sender and receiver connect their bank accounts to the platform. As with an e-Transfer, the sender would select the recipient’s email address to perform the transaction.
The most popular money transfer platform in Canada is PayPal, which most tenants will likely use or be familiar with at least.
Despite their widespread appeal, payments on these platforms can sometimes take longer to process compared to a standard bank-to-bank transfer. However, you can usually pay a fee to expedite transactions.
In addition, some tenants may not wish to maintain an account on a money transfer app nor go through the trouble of learning how to use it.
Rent collection software enables landlords to streamline and automate their rent collection process. Some firms offer a basic, no-frills platform, while others include a wide array of features. The latter may provide automatic payment reminders for tenants, real-time updates of payment status, and options to delay or skip payments at tenants’ request.
These platforms facilitate automatic pre-authorized debit (PAD) payments. As a result, they require you to submit your banking information and that of your tenants. However, tenants will never know your banking details themselves, which helps to maintain privacy and security.
Rent collection software works exceptionally well for landlords with many tenants and properties. Using automatic debit payments ensures that tenants always pay their rent on time.
However, it can be a costly and redundant option if you operate a small rental business.
Letting tenants drop off their rent payment at a designated location can work well for some landlords.
Suppose you maintain an office as part of your rental business. In that case, you can instruct tenants to drop off their rent payments at its location on or before the rent due date.
This method of collecting rent is convenient if most of your rental properties are located nearby your office. However, if you live far out in the suburbs while your tenants live in the downtown core, getting timely rent payments could prove difficult.
In addition, problems can arise if the tenants drop off cash. The funds can easily be stolen or misplaced. And with no paper trail, it can be a real challenge to determine what happened to the money.
Choosing and sticking to an efficient and reliable rent collection process is necessary for a thriving rental business. Before you take on your first tenant, ensure you have a concrete plan of how you will collect rent each month. And more importantly, have a plan for dealing with unforeseen issues that may arise with payments.
Be sure to outline your rent collection policy in your rental agreements. Explain clearly to your tenants how to submit payment. Provide instructions as needed and offer assistance to help tenants get set up.
When it comes to ease, convenience, and accessibility, you almost can’t go wrong by collecting your rent online. Using a dependable, secure, and flexible platform will save you from plenty of headaches. And plenty of gas money, too, since you won’t have to visit your tenants!
Singlekey’s Rent Collection platform can help you easily streamline your rent collection. In just a few minutes, you can set up your tenants for automatic payments. You can effortlessly track payments from one location, and the platform will even dispatch reminders to tenants of upcoming rent.