Ask Lucas

Ask Lucas 008: How Do Online Rent Payments Work?


Ted from New Mexico has been collecting paper rent checks for years and is wondering if online rent payments would be a better option for him. However, he’s not quite sure how it works, and what the benefits are.

Full Transcript:

Lucas:Hey, everyone. This is Lucas from Landlordology and Cozy. Thanks for joining us today. It is the eighth episode of Ask Lucas. It’s a bite sized Q&A show where I answer your questions about landlording and property management. The way this works is that you can leave a recorded question on, and I’ll answer it in this podcast. It’s simple. Let’s get started.

Today’s question is from Ted in New Mexico. Let’s hear what he has to say.

Ted: Hey, Lucas. This is Ted from Albuquerque. I’ve been collecting paper rent checks for years, and that usually works just fine. Of course, sometimes payments are late or rent checks bounce. I hear you talk a lot about online rent collection, and I wonder how collecting rent online will help me avoid some of those problems. Thanks.

Lucas: Hey, Ted. Yes, you have heard me talk a lot about online rent payments here on Landlordology, and the reason I do so is because I think that it’s so much better, quicker, and more secure for both parties. It’s something that’s on my mission list to try to convert as many landlords as I can from using regular paper based checks to going to online rent payments.

The way that online rent payments typically work, and have worked for the last, I don’t know, ten or twelve years, is that there’s a third party company, or some sort of online software that takes the tenant’s bank account information, and your bank account information, and then basically just processes a transfer of a specific amount at a specific time, and does it on a recurring basis. Hence, rent on the first of the month.

This has worked great, but it’s traditionally been processed through what is called an automatic clearing house, also, known as an ACH. There are lots of federal regulated laws and disclosures that happen around ACHs, which cause these transactions to be delayed anywhere from three to seven days, but it’s often a lot quicker or better than traditionally waiting on a check to clear.

Unless your tenant is handing you a cashier’s check, which has guaranteed funds, and then you can actually treat it like cash, then ACH is still a little quicker than waiting for a normal check to clear.

The real perk to online rent collection, in my opinion, is that it takes out the human factor from the relationship. I’m not saying that I don’t care about my tenants, and I don’t want to get to know them. I’m just saying that I don’t trust them to actually do what they need to do to hand deliver, or mail, or deposit a rent check on time. 

If you force a human or a person to plan their schedule, they may be able to do it most of the time, but there’s going to be those infrequent times where they mess up. It’s the human factor. What that translates to for a landlord is that a tenant is inevitably going to get a flat tire, or at least they say they will, or they couldn’t get to the bank because it was closed, or the post office should have delivered the check on Sunday, and if they had, it wouldn’t have been late. All of these excuses or things that they forgot about, and, therefore, it caused their check to bounce, or their check to be late.

With automated rent collection, the transfer just happens without anybody thinking about it. That’s the beauty of a good system is that you set it up and you forget about it. There are a lot of systems out there, and they’re not all created equal, some of which require a tenant to log in and hit the submit or process button every single month, and that to me is not a really great system, because it still has that human factor in there, and they could forget or what not.

Good systems like Cozy just make it automatic. They set it up and it’s a recurring schedule, and so the only times you’ll ever get emailed or noticed about rent is that if rent is being processed, and then it’s an affirming email saying, “Yes, everything’s good to go,” or, if something’s wrong.

That takes me to the next point about bounced checks. With bounced checks, actually physical checks, you won’t get notified that the check actually bounced for anywhere to seven to ten days. If that’s the case, then you’d have to track down a tenant, and explain to them that it bounced, and then there’s all these other fees that get added on by your bank, and it’s just a mess.

With the online rent collection, sure, the payment might not happen if, and only if, the tenant fails to have the money in their account when it’s time to be withdrawn out. If that happens, then the automated system should, at least a good one, should tell you instantly, “Hey, guess what? Your tenant’s check wasn’t able to be … The money wasn’t able to be withdrawn, so you should give them a call, and tell them to transfer money, and then we’ll try again later today.” That way you avoid all kinds of late payments. You avoid all kinds of issues, because there’s that instant notification.

With that said, I hope that helps. I think that online rent collection is the absolute way to go for all landlords, and it just makes things automated, so you can go back to doing the things that you love, like spending time with your family, or go on a vacation, not having to always be around at the first of the month to process your rent payments, and put them in the bank.

In full disclosure, I work for Cozy, and Cozy handles that. That is their main business, and, honestly, they do it better than everyone else, in my opinion, for small landlords. It’s really designed for the independent landlord, and not like the other big softwares that are designed for big, huge property management companies. It really just has everything a landlord needs.

Check them out. Thanks again for your question, and I hope you make the switch.

Ask Lucas is brought to you by Cozy, which provides end to end property management software for landlords. I use Cozy personally in my own life to accept rental applications, screen the tenants, and then automatically collect the rent online. I automate my rental properties with Cozy, and I love it. It’s really changed the way I do my business. Check it out at

About Lucas Hall

Lucas is the Chief Landlordologist at Cozy. He has been a successful landlord for over 10 years, with dozens of happy tenants and a profitable income property portfolio.
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