Attention Landlords! The Many Advantages of Electronic Rent Collection

You may be adored by all of your tenants and have fixing a water heater in the middle of the night down to a science, but if your tenants still slide rent checks under the door, you’re missing out. Read on and learn about the many advantages there are to collecting monthly rent online or electronically. Drop the letter opener and think about modernizing your rental operations, saving yourself and your tenants time and money in the process.While more than 80% of car loans and mortgages are paid electronically, and over 50% of Americans regularly shop online, less than 5% of rents are collected electronically. Both VISA and American Express have divisions tasked with figuring out rent collection and hundreds of “rent payment” websites and property management software applications have popped up since 2004. For 1/3 of all Americans (the renter population), rent is their single biggest monthly expense. Even though adoption rates have grown roughly 100% annually since 2001, compared to other markets online rent payment is years behind. Advantages to Property Managers & LandlordsWhile the practice of electronic rent collection hasn’t caught on yet, the many advantages to people on both sides of the bolt lock are significant and it is only a matter of time. Here are just a few reasons you should consider buying in.1. Reduce Late Payments by 75%Many report 2%-3% delinquency rates on non-electronic payments, including late and partial payments. By putting tenants on automatic recurring payments (especially by credit card), property managers can reduce that number by 75%. Even ignoring the time and administrative costs saved with electronic payments, this reduction in delinquency alone offsets any transaction fees to the property owner. Tenants never “forget” to send it in. The “1st” isn’t a big day for many people and some simply forget to mail in the check. They’re not bad people; they just forget like we all do. Also, your rent won’t be subject to delays in mail delivery due to holidays or other events.2. Improve Debt Collection by 3xE-checks get re-presented up to 3 times before charging Non-sufficient Funds (NSF) fees. Use of the “Verified by VISA” and MasterCard “SecureCard” programs insulate owners from tenant chargebacks, which equals more liability protection. When rent is paid by credit card, debt collection is VISA’s problem, not the landlord’s. And remember, electronic payments have a better “paper” trail, ironically. Payment authorization can be tracked, audited, and verified.3. Lower Administrative Overhead by 10%Landlords will enjoy fewer or even no trips to the bank to deposit checks. This frees up schedules and eliminates waiting – “Should I go to the bank today or wait until more checks come in?” In some larger companies that translates into fewer personnel needed for rent processing. Those people can be reassigned to more value-added (and income generating) positions in the company.Advantages to TenantsNow that you’re sold on the idea of electronic rent collection the challenge remains to convince your tenants. The good news is, that may be a lot easier than expected.1. Credit Card RewardsAt this day in age, most folks love collecting frequent flyer miles. In the Boston rental market for example, paying rent with a rewards credit card can translate into 48,000 frequent flyer miles. This is the equivalent of nearly two free trips in the first year alone just for paying rent with a credit card.2. Reduce Human ErrorEven the best of us let important tasks slip our minds from time to time. Not having to remember to pay rent due to automatic account withdrawals or credit card transactions eliminates the chance of a late rent payment – and loud knocking at the door late at night.3. Stop Office Clutter, Save a TreeUnless they’re a big fan of stamp and envelope paste, tenants will enjoy having one less letter to mail every month. They can sign up and do a little something for the environment in the process.Costs and Methods of PaymentIf you’re an experienced business person you’re no doubt asking, “What’s the catch?” or “How much does it cost?” by this point. Electronic and online rent payment is in no way cost prohibitive even for the smallest rental operation because costs are determined by volume. If you process $2 million in rents per month, your fees will be half that of someone processing $100,000 per month. And to the extent that property managers and owners can “band together” when negotiating a fee structure with a bank or payment processor, they may save enormous amounts of money.There are two major forms of electronic payment in use today. They both come with a list of pros and cons, and one may be more appropriate for an individual than the other.1. Electronic checks – the true cost of processing can be lower than $0.25 per check but most pay $0.75 - $1. Typically there are two transactions: one to receive the rents, and a second to disburse the rents to the landlord’s account, for a total average cost of $1.50 per unit. If you are the landlord, then the cost is just the $0.75 to receive the rents.2. Credit cards – pricing structures are all over the map. There are normally three parts: monthly minimums (statement fees, maintenance fees, etc), per-transaction fees (may be $0.60 ‡ $2), and a transaction percentage fee (2%-3.5%). Each vendor prices their mix based on your volume, the dollar-per-transaction average, and how knowledgeable they think you are. People with fewer properties will do better at negotiating higher per-transaction fees in favor of lower transaction percentage fees. Do the math for your situation and decide which plan is better.For both methods of electronic payment, the lowest cost is not always the best option. Low cost bidders often provide minimal documentation, proprietary code integration or no support. A poor quality solution will negate all the great potential benefits of accepting electronic payments. You’ll end up babysitting a payment system and trapped with that vendor. Find a high quality vendor with a reasonable price. The reduction in day-to-day hassle on your end will pay for itself 20 times over.Many tenants hesitate to let landlords “get their hands” on checking accounts. But, if a quality credit card intermediary is used, tenants are completely comfortable paying rents by credit card. On average, property management companies report a 10% adoption rate among communities rolling out electronic payments. This is likely due to their marketing. Stressing the fact that tenants can “save a stamp” or “make their life easier” is the obvious approach but doesn’t send them running for their laptops. Switching the message to something more along the lines of “get 2 free airline tickets” is much more convincing, and service providers like RentingYourHome.com have reported adoption rates of nearly 100% using that kind of message to tenants.