When it comes to collecting rent payments, it’s a common mistake for landlords to accept any kind of payment. Since regular and timely rent payments equal healthy cash flow, offering multiple payment methods could seem like the best strategy. After all, you need to increase your chances of collecting rent on time. However, there are some forms of payment that landlords should not accept.
The best rent collection methods must be acceptable solutions for you and the tenant. Making the right choice allows you to collect rent by the agreed date so that you can pay your bills. Choosing a streamlined method for tenants to pay rent helps them avoid late fees or defaulting on rent. This reduces the need for you to confront tenants or start an eviction process.
What are the worst payment options to collect rent? In this article, you’ll find out which rent collection methods you should avoid at all costs. You’ll also find some excellent solutions for collecting rent on time to boost your rental property business.
The Worst Rent Payment Options
The worst ways to collect rent are cash and personal checks. Both payment options are not secure methods and are prone to fraud, theft, and human error. However, even some online payment services are not good options either. Some payment services don’t protect landlords if there are any disputes with the tenant.
Let’s look in more detail at rent payment methods landlords should avoid.
1. Never accept cash payments for rent
Top of the list of rent payments to avoid is cash. Many tenants want to pay rent in cash to avoid bank fees. But accepting cash payments can severely impact your rental business.
The first problem is that cash is easy for you or the tenant to lose. If they lose part or all the money, they might not be able to make the monthly rent payment. If you lose it, you are out of pocket. If someone steals the cash, you will never prove the amount, and your insurance won’t cover it. Of course, there’s also the human factor to consider—miscounting it.
Another reason landlords should avoid cash is that it’s challenging to keep track of. Cash payments don’t leave a digital record. Cash withdrawals won’t show up on the tenant’s statement, so they won’t be able to prove they paid you. You also can’t prove that they haven’t paid. Then, you still need to take the time to meet with your tenant, provide receipts, and drive to the bank to deposit the money—even more work for you.
2. Rent checks are a terrible payment option
Despite still being an extremely popular option to pay rent, checks pose many issues. For a start, you must rely on tenants remembering to write and mail the check. It’s easy for one week to blend into the next, and the checkbook doesn’t come out of the drawer.
The time it takes to process checks is another reason to avoid them at all costs. Once the check is in the mail, you need to wait for it to arrive. During this time, you only have your tenant’s word that they have posted the check. When the check does come eventually, you must go to the bank to cash it in. In the best-case scenario, the check clears after a few days. In a worst-case scenario, the check bounces because there were insufficient funds, and you will have to wait even longer to receive the payment.
Additionally, checks can get lost or delayed in the mail. This problem can result in having to charge the tenant late fees—even though the late rent check wasn’t their fault.
There is still another problem with accepting rent checks—record keeping is a nightmare. You must record the details of each check in your accounting ledgers—by hand. This might not sound too bad if you manage one or two properties. But when you are the property manager of several properties, logging checks takes up precious time.
3. Money orders or cashier’s check
Money orders or cashier’s checks aren’t much better than accepting personal checks for rent payments. Although they are secure, they are more common for making one-off payments. Getting a cashier’s check is rarely convenient for tenants. For example, they will have to travel to a physical location to get the check or money order. And they probably have to pay a fee.
If you receive a cashier’s check, you still must drive to the bank to pay the rent money into your bank account.
4. PayPal is a lousy option for rent payments
While it seems that PayPal is a suitable online payment solution for paying rent, it’s not ideal for landlords. First, you and your tenant need to have a PayPal account. There are also transaction fees to consider. It’s also problematic to collect rent with PayPal. For example, the tenant must move money from their bank account to their PayPal account. They then transfer the monthly rent amount into your PayPal account. Then you move the rent payment to your bank account.
For landlords, there are even more reasons to avoid PayPal. For example, PayPal terms and conditions state that it’s not for real estate transactions. So, if the tenant opens a dispute, the chances are that you’ll lose the money. Also, you can’t stop tenants from making partial payments. This can make it impossible to evict a delinquent tenant who doesn’t pay rent on time.
5. Avoid Zelle as a rent payment option
Zelle is adequate for fast transfers but terrible for collecting rent. Many of the reasons to avoid using Zelle for collecting rent are the same as for PayPal. Also, it is easy for tenants to make a mistake and pay money to the wrong person. This kind of error can cause you all sorts of nightmares when trying to collect rent on time.
Venmo is another terrible option for collecting month to month rent online. Although it seems convenient, its terms and conditions state that it’s only for personal transactions, not business ones. As with other peer-to-peer platforms, Venmo has the right to review every transaction. The company tends to side with the tenant if there is any type of dispute. So, you might be out of pocket if the tenant makes a mistake.
Better Solutions for Collecting Rent
Collecting rent online is always the method successful landlords prefer. However, not all online options are ideal rent collection methods. So, what payment options should you offer your tenants?
Direct debit or ACH transfers are a good option for tenants to pay rent. Their payment leaves a digital trail and is easier to track and record. Setting up automatic payments means that tenants don’t have to remember to make the rent payment because it comes out of their account on the same day each month.
However, one problem with direct debit payments is that tenants can miss rent payments and incur late fees. For example, if, for some reason, the money isn’t in the tenant’s account, the amount won’t go through. This can cause potential tension between you and your tenant.
Collecting rent with a credit card is an excellent backup option to offer your tenants. Some tenants prefer paying rent by credit card because they can take advantage of rewards and cashback. For other tenants, the choice of paying rent with a credit card helps them to avoid missing rent payments if they are short at the end of the month.
Rent Collection Apps
Using rent collection apps is one of the best ways to collect online payments from tenants. Rent apps such as RentDrop offer landlords the ability to accept debit cards, credit cards, and ACH bank transfer payments. Additionally, landlords and tenants can set up automatic payments—a helpful way for tenants never to miss a rent payment.
Some other features of RentDrop that help landlords streamline a rental business include:
- Automatically calculate late fees
- Send out automatic rent payment reminders
- Collect security deposits
- Accept various forms of payment, including e-check, debit card, credit card, and ACH transfers
- Process rental applications and eSign documents
- Carry out screening, credit checks, and background checks on prospective tenants
- Handle maintenance requests
Automation is the way forward for landlords to collect rent payments. By choosing an online rent collection app, landlords can automate more processes—and all from their smartphones or tablets.
Besides the benefits for your property management business, your services will also appeal more to tech-savvy tenants and looking for solutions to make their lives easier.
Worst Payments Options to Collect Rent — In Conclusion
It’s time to ditch the worst rent collection payment options. Paying by cash, check, or online peer-to-peer systems is prone to mistakes, takes time, and belongs in the past. Successful landlords benefit by switching to online rent collection solutions. Rent collection apps such as RentDrop have the essential features your rental business requires.