7 Tips for Collecting Rent and Getting Paid On Time

Written on June 16, 2013 by , updated on June 12, 2014

Collecting Rent on Time

Managing rental properties can be a profitable business as long as you manage your cash flow well and collect rent on time. In fact, the biggest factor in your cash flow will be your ability to collect rent on time.

Stereo-typically, renters are not the most fiscally responsible people. Whether this is true or not, at one time or another you are bound to have a tenant who pays rent late – or not at all.

Here are seven tips for collecting rent on time and handling tenants who have trouble paying rent.

1. Make it Automatic

Requiring tenants to pay rent via an auto-pay or auto-deduct system is the best way to collect rent on time.  There are even multiple systems that will deposit the money automatically to your bank account.  The major benefit is that this eliminates the factor of human error – i.e. tenants “forgetting” to pay rent.

There are multiple ways you can set up automatic rent payments:

ACH Debit:

Use an ACH (automated clearing house) to withdraw money from the tenant’s bank account.  To authorize this transaction, the tenants sign a document that allows the landlord to withdraw a set amount of money on recurring basis.

Cozy uses ACH direct deposit systems to deduct the tenants rent money and deposit it to your bank account.

The downside is that if a tenant doesn’t have enough money in their account to fund the withdraw, the draft will bounce, and you won’t get paid.  ACH systems usually cost $.50 – $3.00 per transaction and take 4-7 days to process – so it’s not the quickest solution for collecting rent – but it is the easiest.

Online Bill Pay:

All major banks have an “online bill pay” feature.  If you don’t want to set up an ACH, you can ask your tenants to set up their rent payment as a recurring bill with their bank.  This way, the bank will issue a check and mail it to you automatically every month.

The downside is that you still have to deposit the check, and payments could get lost in the mail – albeit, the bank is mailing the check, not the tenant.

Collect Post-Dated Checks:

Prior to the invention of online payments, some landlords would collect 12 post-dated checks – one for every month of a year-long lease.  Then, the landlord would simply deposit the check on the first of every month.  It’s pretty simple, but most tenants I know are uneasy about writing 12 post-dated checks – especially to a landlord they just met.  Remember, it’s illegal to cash a check before the date mark.

2. Choose Your Tenants Wisely

Only rent to qualified tenants with a great rental history. No surprise here, right?  When screening tenants, you will see the entire gambit of credit ratings.  Some prospective tenants will have an excellent history paying bills, but others will have downright terrible payment habits.

  • Set your Criteria: Start out by being very clear about the criteria prospective tenants must meet to pass the application process.  Discrimination laws state that you much hold the same standards and criteria to all tenants.  If you deny an applicant for having $50,000 in credit card debt, you must deny all applicants who have $50K or more in consumer debt.
  • Income Requirements: At the very least, this should include regular income equivalent to three times the rent amount or more, and an established history of paying rent on time with past landlords.
  • Good Credit: Landlords and property managers should always obtain an up to date consumer credit report, which usually doesn’t include rent payments, but does include eviction judgments and past debts. You will also discover how they’ve been paying other creditors.
  • Check References:  I believe that the best predictor of future behavior is past behavior. Therefore, thorough verification of the application information is critical to paving the way for prompt, full rent payments.  Always call the previous landlord and ask “would you rent to them again?“.  Keep in mind that a previous landlord does not have to tell you anything, but it doesn’t hurt to ask!

3. Exercise a “No Cash” Policy

Accepting cash as a rent payment is never a good idea. I know it’s tempting, but as I discuss in the article “Danger Danger, Be Cautious of Cash“, just don’t do it.

Cash is too easily lost, leaves no paper trail in the event that your tenant disappears, and may sometimes imply that your tenant is involved in illegal business activities.

You can eliminate these risks by establishing a policy in which you do not accept cash as a payment for rent.

Serve a legally sufficient notice of your “no cash” policy and advise your tenants of acceptable ways they can make their monthly payments, such as check, money order or direct debit. Remember to communicate this policy in your lease or rental agreement.

4. Enforce Your Rent Collection Policy

To ensure regular, timely rent payment, keeping your collection policies firm and consistent is the industry best practice – but there are few exceptions.

In your lease, you should address all payment related issues including the:

  • exact amount due every month
  • where payments are made
  • acceptable payment methods
  • when rent is due, grace periods
  • the consequences of bounced checks or default.

At one point or another you may feel sorry for a tenant falling on hard times, or simply be in too much of a hurry to charge a late fee. If you are sure that a good tenant is only experiencing a “just this once” type of issue, feel free to cut them some slack.

However, to keep them from taking advantage of your generosity in the future, be firm about your policy from then on and don’t make a habit of being lenient. Let them know that rent should always come first in regards to paying bills and that their delinquency results in costs that will be passed on to them. In a previous article, we suggest forgiving a late fee once, but ONLY once.

If you are so short on time that you cannot adequately collect rent or late fees, then consider hiring a reputable property manager to do this for you.

5. If they are Late, Ask the Necessary Questions

When you come in contact with the tenant who has yet to pay rent for the month, ask them a few questions that will clue you into the heart of the issue.

  • When do you expect to make a payment?
  • Where will you be submitting your payment?
  • What is the exact amount that you will be paying?
  • What will be your method of payment?
  • What is the source of income you will be using to make your payment?

If they are evasive in answering these questions, serve them with an eviction notice the next day.  You can only serve an eviction notice if they are breaking your lease. Check your state rules to find out the legal amount of time required for the notice before you file for eviction, and if your state requires multiple infractions before pursuing eviction.

Serving notice (unofficially) can be as simple as taping a piece of paper to their door saying “pay past-due rent, or I’m evicting you “.  However, it’s not really official until you mail them a formal letter and send it via Certified Mail as evidence of receipt.  In a perfect world, the letter taped to the door will be enough to scare them into finding the money somewhere (i.e. mom and dad).

6. Make the Consequences Known

You have to be prepared to report a past-due tenant to the credit agency.  More importantly, make sure your tenants know that you will report them – which will ruin their credit.

You must include a statement in your lease agreement, informing your tenants that late rent payments may be reported to the three major credit agencies. You must also disclose that late payments may negatively affect their credit.  This alone will likely keep the tenant on their toes and ensure you receive rent on time.

Obviously, you don’t “want” to report anyone, and this is more of a scare-tactic than anything else.  Nonetheless, you should know how to follow-through.  To report a late rent payment, or a delinquent tenant, you’ll need to call the credit bureaus for guidance:

Note: In some cases, there may be a fee to report a tenant.  In other cases, you may have to get a judgment, or submit the debt to a collections agency before it will show up on the tenant’s credit report.

7. Offer Rewards to Responsible Tenants

A critical part of managing a rental property is holding on to good tenants. Sometimes landlords can be so focused on preventing unwanted situations that they overlook the renters who make their job worthwhile.

If you have a tenant that always pays rent on time, abides by your rules and takes good care of your property, show them how much you appreciate them with an Amazon gift card or fruit basket.

A perfect opportunity to show your appreciation is after your tenants have paid a year of consecutive, timely rent payments.  A well-timed gift basket could also provide a wavering tenant with the motivation needed to renew their lease.

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63 CommentsLeave a Comment

  • Patricia Harrison

    When managing a rental property, it’s crucial to know how to manage tenants first.

    • Lucas Hall

      Hi Patricia, I’ve learned that when managing tenants, it’s really just about managing their expectations and being a teacher, not always just the enforcer.

    • Kelli

      I pay rent with welfare check and landlord sseems to think he can go into my account when ever hewants i am sick and tired of it i wanna suie??do i have the right?

  • Shawn

    What an informative and insightful article! As a landlord I have much to learn and thanks to the website, Landlordology, I have already learned so much.

    • Lucas Hall

      Thanks Shawn. I appreciate the support! Feel free to leave additional comments when you have questions about other articles. That way, others can learn from the Q&A. We will all succeed if we stick together :)

  • Gary

    I agree, very good tips and advice. As a new landlord, I have found that spending more time with Tenant Screening is definitely worth the extra costs. I stumbled upon a Canadian rent payment system called http://www.rentxchange.ca. Really helps to communicate to the Tenant that your serious and you have your ducks in a row!

    • Lucas Hall

      Hi Gary,
      Thanks for the comment. I haven’t heard of Rentxchange before, but it seems like it would have most everything a landlord would need. However, at $5 per transaction, it’s super pricey. For landlords with group houses or multiple paying tenants (like me), it’s instantly more expensive than other systems like Cozy (https://cozy.co).

      Also, it’s only open to landlords in Canada. Maybe I’ll check it out if they ever open it up to US residents. Thanks for the recommendation though.

  • Heather

    Some of these pointers won’t work in Massachusetts, where charging late fees to tenants is not permitted, nor are post dated checks. It would be great if those things were permitted, particularly late fees. I am wondering what to do when a prospective tenant says they were a home owner, therefore apparently not renting so no landlord to check references?

    • Lucas Hall

      Hi Heather,

      Massachusetts does allow late fees 30 days after rent is supposed to be due (MGL c.186 § 15B(1)(c)).

      I’m not sure about post dated checks though…

      Also check out the write up we did on Massachusetts Landlord-Tenant Law: http://www.landlordology.com/massachusetts-landlord-tenant-laws/

      In the case of potential tenants who aren’t coming from a previous rental, but rather they owned a house and probably had a mortgage, you want to find out if they always paid their mortgagee on time. You can do this a few different ways.

      1. Ask them to produce 18 months of mortgage statements (usually just a printout from the mortgage company’s website), or
      2. You can run a credit report to see if they had any late payments. Cozy Credit Reports will give you a summary of the data, including any late payments: https://cozy.co/credit-reports/

      You should also ask how long they have been homeowners. If only for a year or two, then you might be able to get the name of the previous landlord to call.

  • Roger

    Repeadily accepting late payments can establish a defacto new due date, even if your Lease states otherwise. Check with your local practices.

  • AL WALLINGER

    CAN YOU DEDUCTED RENT FROM YOUR TENANTS PAY CHECK IKNOW SOMEONE THAT HAS DONE THIS.

    • Lucas Hall

      Hi Al,

      No need to scream, my friend :)

      It’s called “garnishing wages”, and a court order is needed to do this.

      First the landlord needs to win a judgement against the tenant, and then request that the court issues an order for garnishment. Then the landlord can take that court order to the tenant’s employer, and they will deduct a little money from each of the tenant’s paycheck until the debt is satisfied.

      If you want to garnish a tenant’s wages, be sure to talk to a lawyer first. Keep in mind, I’m not a lawyer. I’m just and experienced landlord, trying to help!

  • Filip Jensawn

    This whole industry is a crock.

    The leasing agreements basically tie the tenant’s hands behind their back and hope that the property owner doesn’t take advantage of them over small technicalities.

    There is simply endless examples of how screwed up your culture is. How on earth is it legal to attempt to force a new tenant who misses 1st month rent to pay the WHOLE lease term? YOU DID NOT LOSE $8,400 OVER SOMEONE MISSING A $701 PAYMENT.

    • Lucas Hall

      Hi Filip,

      Many leases do include a “compiling of rent upon default” clause, which does exactly what you are experiencing. If you fail to pay rent, the lease says that you can still be held liable for the rest of the rent, all 8K of it, because you defaulted on the lease.

      Depending on the specific rules of your state, a judge may or may not uphold this clause. Many states require a landlord to take reasonable efforts to mitigate damages to the tenant – which includes finding a replacement tenant, and then letting you off the hook.

      State Laws: http://www.landlordology.com/state-laws

      It really has nothing to do with actual damages. It’s a contract, and there are penalties for breaking that contract – like not paying rent.

      I suggest taking this seriously. Try to work something out with the landlord. If you simply get mad, they will likely win an judgement against you and it might stay on your credit for a long time. If the clause is unfair, it’s best to face it head on and take the landlord to court.

      Keep in mind, I’m not a lawyer and this is not legal advice.

      • Johnny

        I think it would be wise to recognize where your own bias comes into this: From my experience landlords see these contracts as something to protect them from tenants, when in reality it is a two way street. For instance, imagine you started making radical changes to the property during the term of the lease, changes that included cutting off access to an egress by way of unannounced construction, engaging in weekend work with contractors at early morning hours, and even installing security cameras that allow you to monitor the doors of each tenant. Imagine that this happened in the middle of a freshly signed lease. Do property owners believe that the prohibitive costs of courts shield them from having to uphold their end of the contract?

  • Ouch

    our landlord in California is now asking for post dated checks for each of the next 3 months rent. On the surface this is cool, but he refuses to fix things on time. Not a leaky sink or air conditioning filter. We are talking 9 months to fix a carbon monoxide leak. We discovered it by a utility inspection, took 2 months to fix, by a non certified worker. His buddy, a drug addict. We now have to have the utility come out to inspect. Same with many other things. Is this legal?

    By the way, we have been on time with the rent for 16 months and we are asked to help show empty apartments. Never received any pay or rent reduction. Even cleaned apartments for move in with no pay. Is this legal and normal. We are in California.

    • Lucas Hall

      Hi there mr ouch

      What does your lease say? Does it mandate post dated checks? If not, then you are under no obligation to do it. You just have to pay the rent when its dues. If you are in a month to month lease, I suggest finding a better place to live. Your landlord sounds like the type that will eventually take advantage of you or get you killed by CO.

  • Hudson

    Hello,I need help I live in Florida, the management all of a sudden switch to online payment only is this legal? A rental complex with about 150 units please advise me.

    • Lucas Hall

      Hi Hudson,

      It really depends on what your lease says. If it doesn’t specify exactly how rent should be paid, then Managers are generally allowed to change the method to suit their business. Have you considered just going along with it. Online rent payments are a great way to streamline your rent payments, and generally make life easier for everyone involved.

      If you are looking for legal advice, I suggest talking to a locally licensed attorney, and showing him/her a copy of your lease. Good luck to you.

  • Fountain Property Group

    As a professional property manager, I found your article very useful. These tips will surely help landlords in ensuring that rentals are paid on time.

  • Susan Byers

    Excellent article. Your suggestion about the gift card/basket is one I will try. The naughty tenants tend to “hog” most of our time and energy. Can you imagine the referrals that might come from acknowledging a good tenant? Birds of a feather flock together. Just sayin’.

    • Lucas Hall

      Indeed! When I find out that a good tenant is leaving, I usually invite them to refer another tenant to me. If their referral signs a lease, I’ll pay them a $100. It saves me a lot of marketing effort, and as you said “birds of a feather flock together!”

  • Melissa s.

    Hi Lucas,

    I’m wondering what kind of language you include in your rental agreement to require rent collect via the cozy website. Do you clarify the due date as being the date that you receive confirmation of payment? I realize that ACH transfer is on a different timeline, so am trying to tighten up the language…

    Thanks in advance for your answer and for this amazing collection of resources for landlords!
    Melissa

    • Lucas Hall

      Hi Melissa,

      Here’s my lease clause, but please talk to a lawyer in your state to determine if you can mandate electronic payments. I’m not a lawyer.

      “Landlord requires that rent installments be paid through COZY SERVICES (https://www.cozy.co) – a secure online payment processing website approved by the Landlord. Landlord reserves the right to discontinue this service and require at any time that Tenant(s) pay all rent and other sums by certified check, money order, personal check, or other method, following the same schedule and due dates. No personal check from a person who is not a Tenant or approved occupant will be accepted. ”

      When using Cozy, it tracks all payments and transactions between the landlord and tenant. The tenant is credited with giving a payment on the day that the transfer is initiated. It does take a few days for the landlord to receive the funds, but it’s no different than if the tenant hands you a check, and then it takes a few days to process. If the transfer fails (for whatever reason), then the transaction in the Cozy lease ledger is updated as a “failed payment” and it will show that the tenant still owes that money.

      It’s really slick, and works well.

      I hope that helps! Again, please talk to a lawyer before using that lease language.

      • Melissa s.

        Thank you, Lucas! This is great information and I will certainly clarify whether or not electronic rent payments can be mandated in Oregon. I used Cozy for credit checks and I’m excited to set up rent payments through the site as well.

        Thanks again!
        Melissa

  • Peggy Wolf

    I give tenants a rebate ($20 or $25 on a rental of $875) if I receive their rent check BEFORE the 1st of the month.

    • Lucas Hall

      Hi Peggy,

      Thanks for chiming in. That’s a common practice, and it tends to produce results. However, I would argue that any tenant who would pay early for a $20 discount would also pay on time to avoid a late fee. I hope the believe that you shouldn’t need to incentivize tenants to do something that they are already contractually obligated to do. I’d rather set a hefty late fee, and require them to set up automatic online rent payments so they can’t forget. But hey, this is the classic argument of “the stick or the carrot” :)

  • Joe

    Another good way to get around late fee rules is to offer a discount for prompt payment. For example, I have one rental that is 1500 month, however it’s written into the lease if received before the first of the month the rent is discounted to 1,250… works like a charm!! 6 years and counting…. all early payments! great tactic and no need to worry about laws concerning late fees.. haha.

    • Lucas Hall

      Hi Joe,

      Unfortunately, many Judges will look at this situation and say that because the price is 1,250 if paid by the due date, then that is the real rent price (regardless of what your lease says), and if you try to charge $250 if they pay late, then that would be excessive. I’ve heard of this happening to many landlord and Judges are very familiar with this technique to get around the rules – and they can throw it out.

  • Cybil

    Can you please recommend any good collection agencies? I have been doing research online, but, not very satisfied with my results.
    I have a judgement for more than 5K.
    Thanks,
    Cybil

  • Steve

    I just got introduced to Landlordstation, Lucus, have you heard of them? If so, would you recommend? Thanks in advance!

    • Lucas Hall

      Hi Steve,

      I’ve personally never used Landlord Station. But I’ve followed them for a while. I use Cozy because it works amazingly well, and it’s completely free for landlord and tenants. I’m able to make my applicants pay for the screening reports directly.

      Based on reading through Landlord Stations’s website, it looks like they process money through Dwolla, so you might have to sign up for a third party account to collect rent. Plus, the reports seem to be paid for by the landlord – so you’d still have to collect money from the tenant.

      You could always try Cozy on one property, and LS on another. Then, switch to whichever one you like the best. Or, start with Cozy first, since it’s really free, and then try something else if you think you’re missing something.

  • Carly

    I’m a tenant. Anybody willing to give some advice? I’m having to pay rent electronically by the 5th of each month. I pay on the 5th, but property mgmt. aren’t receiving it untill a few days later. I get paid on the 5th. They are saying I can still pay on the 5th, but it needs to be received by the 5th, as said by landlord. I told them I don’t fully understand, and pls call. They said they’ve explained before, and aren’t going to be in office much.

    • Lucas Hall

      Hi Carly,

      More than likely, your rent is due on the 1st, and has a 5 day grace period. If the money is not in their hands, or submitted electronically through their website by the end of the day on the 5th, then you would officially be late on rent, and might have to pay a late fee, or risk getting your lease terminated. It’s irrelevant to the landlord when you get paid. It’s all about honoring the lease agreement.

      Good luck to you. I hope that helps. Please know that I’m not a lawyer, nor is this legal advice.

  • lorina coghlan

    Fantastic ideas , I am thankful for the insight ! Does anyone know where my assistant might be able to grab a fillable a form document to fill out ?

  • Mutebi Keith

    any one to advise me on how to gain money on time from my apartments
    thax

  • Eric

    Thanks for the wise information.I am a real estate manager in Kenya, Kisii county.This is going to help me a lot. What I normally do is ask them to deposit the money through a pay bill number to our account thr mobile money transfer or do direct deposit to the account and present the pay in slip for official receipting.

    My problem is for those who pay part of the rent and retain the balance to clear soon! how should I handle them.

  • Ali

    In California if your lease doesn’t state grace periods or instructions to pay rent by mail, do I send in my payment by money order 5 days before due date? Or, as long as the money order and postal date has right rental due date on it’s considered on time?

    My landlord has never given me instructions and I have asked but I’ve been ignored. They claim they have mailed me the info many times and refuse to explain it over the phone. I always drop it off at the office but they’ve moved to far for me to continue dropping off.

    My home was owned by a private owner but now it’s owned by the bank because of foreclosure. I’ve had to many problems with the bank, they are not helpful and are unorganized.

    • Lucas Hall

      Hi Ali,

      Rent isn’t like filing your taxes. The postmarked date is irrelevant. Rent needs to be in your landlords hands by the due date, so if you are going to mail it in, I suggest you send it with plenty of time to account for post office mishaps.

      Even better, invite your landlord to start using Cozy (https://cozy.co/invite) and then you can pay rent online.

      I’m not sure what to say about the confusion with where/who to send the payment too. You’re just going to have to get that straightened out first.

  • Kathryn

    When I investigated Cozy as a way for tenants to pay rent online, I saw that there is a 2.75% fee for debit card or credit card payments (although direct draw from checking accounts is free). If rent is $850 the fee would increase the payment by almost $24. Using Cozy as the payment vehicle is only free if the renter is willing to have his/her checking account directly linked as the payment method. Has that been your tenants’ experience? If so, do tenants express frustration about the added expense for using a debit or credit card to pay rent? If not, please correct me. Thanks.

    • Lucas Hall

      Hi Kathryn

      The majority of tenants choose to pay via ACH (bank account), and thus, the payment is free for both parties. There are some tenants who simply want the convenience of paying with a debit or credit card (or to earn sky miles), and don’t mind paying the 2.75% fee for that.

      We don’t hear many complaints about the CC fee, simply because there’s an free alternative. If it matters that much to them, they can just opt to pay by ACH.

  • Shannon brooke

    It’s actually illegal to post date a check

  • Bell

    My tenant handed me the rents check dated the 1st when rent is due on the 5th. I cashed the check immediately on the 1st and tenant overdrafted as he expected for the check to be cashed same day as rent is due (the 5th). He is now asking for reimbursement for his bank overdraft fees.

    In the past he has written post dated checks which I would hold until the 5th but he didn’t do that this time.

    Do I have to pay tenant for his fees or is it his responsibility?

    Thank you.

    • Lucas Hall

      Hi Bell,

      I can’t give legal advice, but if I were in your situation, and my tenant didn’t ask me to hold the check, or there wasn’t a status quo from previous months, then I wouldn’t agree to pay his overdraft fees.

  • Sarah

    I have a tenant in Florida who consistently pays rent late. Last 3 months since the lease has started she has been at least 13 days late. I have her depositing the rent into an account I set up through my bank. I read that is a bad thing to do can anyone tell me why?

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