This article was posted on Sunday, Aug 12, 2012

Are your rent collections as efficient as you would like?  Do your tenants pay the rent at the first of the month or right before the late charges kick in?  At what point of the month are all your rents collected?  Speaking with several property managers on this subject, I find that rent collection is one of the less than gratifying aspects of their job.  In fact, it can become their biggest headache.
Collecting 100% of your tenant’s rent is an integral part of a property manager’s job.  Making sure that all monies are collected in a timely manner can mean the difference in not having to pay late fee assessments levied by lending institutions or late fees charged by vendors.  The revenue from rents is necessary for paying the building mortgage, operating expenses, and showing a profit for the owners and investors.  As a consequence of not collecting rent in a timely manner, operating expenses dramatically increase because financial obligations cannot be met.  The mortgage payments on most apartment complexes have large late fee assessments.  These can total in the thousands of dollars in a matter of a month.  Vendors may add on late fees, which can add up significantly over time.

Because operating an apartment complex is a multi-million dollar business, it is imperative that all rent money be collected when it is due.  After all, your complex is not a loan company.  By accepting late rent consistently, you essentially are being a loan company.  Oftentimes, the tenants will gauge the personality of the apartment manager as to whether he or she has an easygoing persona.  If tenants feel that they can get away with late payments, they invariably will.  Like the question asked:  do your tenants believe that rent is due on the first of the month or just before they will be assessed late charges?  Tenants will take the attitude that the manager will wait.  Of course, the landlord whose job it is to work for the best interests of the owners and investors is placed in a reactionary position of not being such a nice guy.  Such tardy attitudes on the tenant’s part may exacerbate tenant-management relations to the extent of producing bad blood or at worst, eviction.
There are many different ways and techniques that resident managers deal with making sure their tenants pay their rent on time.  I spoke with several property managers and gathered some feedback.

¢    The first thing is to make a screening of prospective tenants initially to make sure that they have the ability and means to meet rent in a timely manner.
¢    Firmly establish the policies regarding when rent is expected and the consequences of delinquent payments.
¢    Always be courteous but assertive in regards to enforcing the policies.  A good apartment manager will show compassion yet be fully aware that his/her job is dependent upon the uninterrupted cash flow and revenue from her tenants that maintains the operation of the multi-million dollar apartment complex.
¢    If tenants are late with rent, make personal contact two days after rent is due, or leave a friendly note reminding the tenant.  If the person has an excellent paying history, then a friendly reminder is adequate.
¢    Policies regarding late rent are different with each building and their manager.  What is important is following through with your procedures as each day goes by that the tenant fails to pay.  If you don’t push or aren’t assertive with collections, then people will tend to think that you don’t need the money.

There is another way in making sure that rent is always timely.  You can directly draft your tenants’ bank accounts for their monthly rent.  This not so new concept is the same concept that many people already employ to pay their bills.  Some people have their insurance, mortgage, or health club dues taken out directly from their checking account.
Why not be able to apply the same thing to apartment rental?
Well, for one thing, such a service is not easy to come by.  The first thing is that the building owner’s bank will not necessarily offer drafting services.  The reasons have to do with (1) the bank’s unwillingness to take on risk; (2) the service itself being cost prohibitive for the business owner; (3) that particular bank may not even have such a service.  The process of drafting tenants’ bank accounts is called ACH (Automated Clearing House) or more commonly known as EFT or electronic funds transfers.  Drafting electronically is designed for businesses that have a very high volume of recurring customers.  The banks will generally not take on smaller businesses.  There are, however, vendors that specialize in bank drafting and do offer drafting services to smaller businesses.
Payment processing vendors fill a niche for small to medium size businesses that would like to be able to draft their customers directly for payment.  There are methods to draft processing that make it cost effective for nearly any business.  Services from such a vendor would be ideal for an apartment complex to offer to their tenants.  A win-win situation emerges for both the property manager and tenant.  There is a predictability of cash flow and zero waiting time for checks to be collected.  The tenant wins by not having to remember to write and send a check every month, thus avoiding late fees and hassles.

Property managers should consider giving a small rent reduction to their tenants that use this automated payment system.  Remember that the goal is to achieve 100% collections the day rent is due.  Each day that goes by without payment costs the building owners in the long run.
Property managers never are without tasks and challenges to meet.  What a nice thing it would be if the rent collection process could be made simpler and more efficient.

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E. Emmanuel del Casal is the Director of Sound America Bank Drafting, a payment processing service bureau which is an affiliated member of a nationwide network of payment processing vendors licensed and certified by National Bank Drafting Systems, Inc. They can be reached by phone at 888-799-2206 or email at: [email protected]  Reprinted with permission of the Berkeley Property Owners Association.

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