4 Things You Need to Know about Setting up a Rent Collection System

4 Things You Need to Know about Setting up a Rent Collection System

While multifamily rental properties are a great source of steady income, late and unpaid rent can severely impede your cash flow. Therefore, it’s vital that you have a comprehensive system in place for collecting rent regularly and on time and for handling tenants who don’t pay on schedule.

To ensure the success of your rent-collection system, you should follow these tips:


  1. Choose good tenants.

Regardless of what type of system you impose, the best way to ensure your renters routinely pay on time is to avoid problem tenants in the first place. This could mean employing a stringent application process that gives you enough information to make a determination about whether the applicant likely will pay his or her rent on time. The application should also have clear criteria for approval. While the law requires managers to hold all tenants to the same standards, it does not mean that those standards have to be low ones.

Look for applicants who have a good rental history, and check their consumer credit report to make sure they pay their bills on time. Property managers may also want to consider requiring tenants to verify that they have a regular monthly income that is at least three times the amount of their rent payment.

Lastly, you should always check applicants’ references, especially their previous landlord. References can provide insight into an applicant’s character and rental behavior beyond what you can glean from a written application.




  1. Take advantage of automated payments.

Requiring automatic rent payments eliminates the common excuse that a tenant didn’t pay because he or she “forgot.” Automatic payments will make paying rent easier and timely for all tenants. The most convenient systems let users establish auto-pay or auto-deduct features, which will automatically withdraw rent money from tenants’ accounts each month and deposit it into your account.

Some options for automatic payments include the following:

Post-dated checks—Paying rent by check is becoming antiquated, but asking tenants to provide 12 post-dated checks for a year of automatic payments still can work. Legally, property owners cannot cash checks before the date they are written, so post-dating restricts you to depositing the appropriate check at the first of the month.

Direct deposit—This is the easiest and most convenient way to collect rent. To establish an automated payment system, you can use an automated clearing house (ACH) to transfer money from a tenant’s account into the property’s account. An ACH will establish a regular system of payments, stabilizing cash flow from rental properties. Typically, set up requires the tenant to provide banking information and sign a document giving you permission to withdraw a certain amount of money each month.

There are a few drawbacks to direct deposit payment systems. First, the payments may take as many as seven days to process, so payments usually won’t be available at the beginning of each month. ACH systems also typically charge a fee between 50 cents and $3 per transaction, which cuts into a property owner’s profits.

Lastly, the system assumes that the tenant will have enough money in his or her bank account to pay rent. If there aren’t sufficient funds, the draft will bounce and you will have to find another way to collect the rent that month.

Online payments—Another way to receive automatic payments is to ask tenants to set up a recurring online bill pay through their own bank. Through this feature, the tenant’s bank will issue a check every month and mail it to you. While online bill pay still requires you to physically deposit a check each month, the check will come from a bank rather than from a tenant, who could miss payments.


  1. Establish consequences for late payments.

Tenants are more likely to pay on time if they are fully informed of your rent payment system, including the consequences for making a late payment. The lease should clearly outline how to pay rent, including exactly how much is due every month, which payment methods tenants can use, when the payment is due every month, whether or not there is a grace period for payments, and where to make payments. The lease also should state how you deal with late payments. If there is a late fee, you should state it in the lease.

When tenants are chronically late with rent or don’t make payments at all, you should report them to a credit agency, which will hurt their credit score. It’s a good idea to ensure that tenants know that this is a consequence, as it could deter them from making late payments.




  1. Provide incentives for on-time payments.

Responsible tenants who regularly pay rent on time are vital to operating a successful multifamily rental property. While it’s important to focus on making sure delinquent tenants pay their rent, it can be equally important to retain good tenants.

You can show your appreciation for tenants who pay on time and maintain their rental unit well with incentives and small gifts. For example, you could offer an Amazon gift card to tenants who make on-time payments for a year or send a small gift basket at a key time. Tenants who feel appreciated likely will continue with good behavior, and if they feel valued they may be more inclined to renew their lease.