You don’t have to be an experienced landlord or real estate investor to understand the importance of collecting rent on time. This is Rental Management 101: You establish a rental price, your tenant signs a lease, and rent is collected every month.
Simple, right?
Well.
Receiving rent payments on time each month is crucial to running your rental business successfully, but late or missing rent payments do occasionally happen. Even if you’ve been diligent with your tenant screening and even if you have excellent relationships in place with your residents, good tenants can sometimes find themselves in a precarious financial situation that they never saw coming.
In such situations, it’s important to handle yourself with understanding and compassion while still protecting your own financial interests and holding your tenants accountable to the rent collection policy and the lease agreement.
We are professional property managers. Actually, we’re your Real Estate Gladiators, which means our team is your first line or protection against things like late and missing rental payments.
Today, we want to explore some effective strategies you can use as a landlord to address late or missing rent with both empathy and pragmatism. From communicating constructively with tenants to potential payment arrangement options, we’ll outline a thoughtful yet results-oriented approach you can take to resolve payment issues and get rental cash flow moving again.
It’s easy to get frustrated and to make a bad situation worse. So, if this seems like something that could be a bit too much for you to handle, let a professional property manager take over. You’ll find that rent comes in on time far more consistently. And, you have less to worry about.
Let’s look at our strategies around rent collection.
Where It Starts: A Consistently Enforced Rent Collection Policy
Collecting rent on time in Monroe and throughout King and Snohomish County starts with excellent tenant screening and a good plan for rent collection that you and your tenant agree to.
You have done the screening. You have checked past payments, rental history, and eviction records. You’ve placed this tenant because you expect they will be able to pay rent on time and follow the terms of your lease.
Next, you need a specific policy that outlines rent collection process. This will tell your current and future tenants how, when, and where you will collect rent. Be thorough. Cover every possible detail and anticipate every possible question. You want to eliminate all barriers to on-time payments with the policy you create.
Wondering what to include in your rent collection policy?
We have some ideas.
It has to be more than the simple expectation that rent is due on the first of the month. An effective rent collection policy will provide an explanation of why it’s so important to pay rent on time. Share the benefits to your tenants with your tenants: on-time payments will save them money on late fees. It will also create a positive rental record which will help when future landlords call for a reference.
Here are the details we like to include in every rent collection policy we establish:
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RENT COLLECTION POLICY PARTICULARS |
COMMUNICATING WITH TENANTS |
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List the Day Rent is Due |
For most tenants, rent is due on first of the month. They will expect this. But, make you’re your policy is clear about which day rent is due and on which day it is considered late. Reference weekends and holidays and whether payment will be accepted on the day following a Sunday or a holiday. Tenants cannot claim to be confused about when rent is due when it’s in your written policy. |
| Establish Grace Periods | Washington State law establishes a grace period for you, and you’ll want to be sure your lease reflects that. Under the law, you cannot charge your tenants a late fee until the rent is late for five days. |
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Share Late Fees and Consequences |
Penalties for late payments need to be specific and fair. The rent collection policy should include all consequences – from late fees up to eviction. If rent is more than five days past due, you may charge late fees commencing from the first day after the due date until paid. |
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State How Rent is Collected |
Your rent collection policy needs to establish whether you’ll accept checks, credit cards, electronic transfers, wires, or online payments. Reference whether you want your tenant’s rental payment mailed, handed in personally, or left in a specific location. |
Now that you have a written and documented rent collection policy that complies with all state laws, you’ll want to consistently enforce that policy. Charge the late fees when it’s time. Serve the eviction notices. You need to let your tenants know how seriously you take this, even if you’re willing to work with them in order to get them caught up with the rent that is owed.
Tip: Online Payments Can Help You Avoid Late and Missing Rent
Here’s a statistic that’s hard to ignore:
The National Apartment Association recently reported that 79% of tenants prefer to pay rent online.
Are you set up to collect online rent payments?
You should be. Online payments can:
- Cut down on the risk of late and unpaid rent
- Provide convenience for your tenants
- Contribute to a better relationship
- Offer an improved rental experience
- Increase the likelihood that your tenants will renew their lease agreement.
With the world constantly evolving and people preferring the convenience of online everything, there is no reason for you not to offer an online rental payment option to tenants. Let’s dive a little deeper into why online payments matter so much to tenants and your on-time rent collection goals.
| Paying Rent Online is Convenient
Online rent payment options offer a high level of convenience. With online payments, tenants can easily make rent payments, 24/7, without needing to go to the bank or send a check via mail. Additionally, online payments automatically record the transaction details, allowing landlords to track payment histories and monitor rent payments closely. |
Online Rent is Automated and On Time
Rent collection can be a challenging. We’re always surprised that tenants can forget to make payment. You probably don’t love the follow-up that’s then required. Payment delays can lead to wasted time and more expenses for you. With an online rent payment option, you can set up automatic rent payment reminders ensuring that tenants pay on time, preventing late payments, and reducing your own workload. |
| Online Rent Payments are Secure
Online rental payment options provide a safe and secure way for tenants to pay rent, as they can keep their payment details online and pay securely with a credit card or bank account. Paper checks have a higher likelihood of fraud; it’s easier for dishonest people to copy account numbers and steal information. |
Increasing Tenant Retention
So many benefits to be gathered when tenants are satisfied with their rental experience… This includes offering online payment options. With the convenience and efficiency of online payment options, happy tenants are more likely to maintain their homes and renew their leases. Paying rent online is easy. |
Online payments simplify the rent collection process by reducing the need for frequent accounting and bookkeeping. Everything is far more automated.
Working with a property manager delivers the ease of online rent payments. You won’t have to worry about finding your own platform or software; property managers already have it in place. Not only is rent collected automatically and on time, there’s an immediate record of the payment. Everything is integrated in our software system, and we can see a coherent, consistent record of payments throughout the term of the lease.
But, Remember: Not Everyone Plays That Online Game
We love online payments and we encourage all of our tenants to pay this way.
But, you will come upon some resistance from time to time. Which means that if you want to collect rent on time and avoid missing and late rental payments, you have to be flexible. Offer other forms of payment as well.
How to Handle Late and Missing Payments
We have provided a couple of great ways to ensure that late and missing payments are minimized.
That doesn’t mean you’ll have a record of 100% on time payments. What do you do when the rent is late? What do you do if the rent doesn’t show up at all?
Here are the best solutions and strategies we can offer you.
| Be Willing to Establish a Payment Plan
If your tenant is unable to pay their rent on time, but you believe they are capable of doing so in the near future, it may be beneficial to establish a payment plan. Setting up a payment arrangement can leave your tenant feeling supported and it can also ensure that rent will be paid without having to march towards eviction. Talk to your tenant about what they can do and where they are, financially. Get a sense of why rent is late this particular month. Is it because of an unexpected financial obligation? That’s easier to work with than a situation that may be more long-term, such as a job loss. Payment arrangements will allow the tenant to make smaller, more manageable payments until they are caught up. You can also consider adjusting the lease agreement to reflect the new payment plan terms. It’s crucial to put any payment agreement in writing and make sure it’s signed by both parties. Hold your tenant accountable to what they agree to pay. |
| Serve the Proper Notice to Protect Yourself and Your Timeline
Hopefully, you won’t have to evict. It shouldn’t come to that. But, if it does, you want to be protected. Evictions take time in Washington. Get the ball rolling now, simply to protect your timeline and your financial interests. If your tenant has failed to pay their past-due rent, the next step is to serve a pay or vacate notice. This means that tenants have 14 days to either pay their rent or move out of the property. It’s important to note that the notice must be served properly and within the legal guidelines set by Washington State law. After the given deadline has passed, you can move forward with legal eviction procedures. |
| Eviction Alternative: Cancel the Lease
Typically, evictions serve no one. Not you. Not the tenant. If it looks like your tenant will simply not be able to catch up with rent, why drag the process out? Give them an opportunity to leave the property as soon as possible. This will allow them to avoid having an eviction on their record, and it will allow you to get the property turned over to another tenant quicker. |
We’re operating on the assumption that your tenant is cooperative in a situation where rent has not been paid. If they are not being cooperative, you may need to pursue other strategies, including a more aggressive move towards eviction. When tenants are nonresponsive, avoidant, and not willing to work with you, file the appropriate notices and motions right away.
You should also hire an attorney, especially if you don’t have the support of a property manager.
Rental Payment and Collection: The Importance of Documentation
Documentation everything. Each payment and all correspondence. This is absolutely essential when you’re renting out a home, even if it’s just one home. You need to create a reliable, accurate, and transparent system for collecting, recording, and managing rental payments.
You have to keep a careful watch on rental income for several reasons. Not only to ensure it’s paid on time, but also because this will be income that you later claim on your taxes, and it needs to be correct. It needs to be easily tracked. Document any late fees or letters you may have written trying to collect overdue rent. Keep your emails and text messages. If there are notices served, keep copies of those as well. If court dates are scheduled, get those into the calendar as quickly as possible.
Strategy: AlertsSet up an alert so you know when a rental payment has been missed. This is especially useful when you’re renting out more than one property and keeping track of multiple tenants. Trigger a notification when the grace period has ended and rent still is not in. |
Strategy: TechKeep this documentation in the cloud. Paper ledgers aren’t going to help you be efficient and organized. Paper gets lost. Paper gets wet. Paper gets set on fire. Digitize your accounting system to reflect when rent is collected. You’ll be able to access the information from anywhere. |
You don’t necessarily have to invest in the best and most expensive property management software to track your rental payments and alert yourself when rent is late. Try a digital calendar. Set reminders on your phone. An automated system that integrates rent collection with all your other financial reporting would be ideal. But, you can work with what you’ve got.
There are many reasons that you might need this documentation, and we want to make sure those are highlighted. It’s easy to talk yourself out of a system, especially if things seem just fine. All it takes is one issue to pop up, however, and you’ll wish you had done things differently. Document better, for these reasons.
- Maybe you’ll be audited (please, no, but what if?).
- Maybe you’ll need to evict a tenant (not a fan, but just in case…).
- Maybe you’ll be thinking about making some changes to your investment portfolio and you’ll need a clear idea of what’s coming in rent-wise (your future self will thank your current self).
Keep everything accurate, detailed, and available. Reach out for some professional help if you need it. A property management company in Washington State will provide some high level accounting and bookkeeping. You can also work with an accountant, a CPA, or a tax expert.
Don’t set yourself up for mistakes.
Final Thought: Consider Rental Incentives
Listen, there’s nothing wrong with a reward system.
Yes, you expect your tenants to pay rent on time every month. It’s something they’ve agreed to do in exchange for living in your lovely home. In fact, you have that agreement in writing. Why should you have to incentivize what they’ve already agreed to do?
We know, we know. But, the idea is to make SURE rent comes in on time, right?
Bringing in rent on time every month goes a long way when it comes to your own consistent income, your own financial organization, and your desire to keep good tenants in place for the long term so you avoid vacancy and turnover costs.
We aren’t suggesting you cost yourself a lot of money making on-time rental payments an attractive option for renters who should be paying on time anyway. We’re simply suggesting that you contribute to your tenant retention plan and increase the likelihood that rent continues to come in on time. Send a thank you every time rent is paid on time. Offer a gift card to the local coffee spot after six months of on-time payments. Waive the first late fee if they’ve been paying on time for a year or more.
You get the idea.
On time rent payments are important to us, and we’d be happy to tell you more about how we do it. Contact us at Real Estate Gladiators. We serve owners and investors in Monroe, Issaquah, Bellevue, Everett, Lake Stevens, Kirkland and other cities in and around King and Snohomish counties in Washington State.
