How to handle late rent payments: A thorn in everyone’s side

Late rent payments can significantly affect a property’s cash flow.

If a portion of your tenants are habitually late at paying their monthly rent, you may have trouble paying your bills and covering expenses.

Which will soon have serious implications for your business. So, it makes sense to some landlords to ensure tenants pay on time by charging late rent fees.

However, this shouldn’t be your go-to answer.

How to handle late rent payments

Should I charge late rent fees?

Is the “carrot” approach (such as an incentive program) more effective at encouraging on-time rent payments compared to using a “stick” such as a rent increase penalty?

Late fees for rent aren’t the only solution.

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The general population (and other landlords) propose you take a more ethical approach to secure your money. Especially when it’s a tenant who has always been by-the-book before and is just having a difficult time.

3 Main reasons for late rent payments

This puts landlords in a tricky spot. How do you encourage good behaviour from your tenants without losing out on profitability? First, you need to identify the causes.

1. Financial uncertainty

No matter how hard we try to avoid it, sometimes life gets in the way.

We lose our job, work fewer hours than we were expecting, or have to pay bills that we simply couldn’t have anticipated. It’s tough.

The choice between purchasing groceries for the week and paying rent on time is a challenging one to make, but, usually, the hunger wins out.

From a tenant’s perspective, landlords and property managers can wait.

2. Personal crisis

When loved ones are sick, the last thing on your mind is late fees on rent. Or, rent in general.

A personal crisis can draw a tenant’s attention away from what day it is, or how much they should be paying. This is completely unavoidable.

3. Outdated systems

If late rent payment is a pervasive issue, the first thing you should do is look within. Ask yourself why your tenants are paying rent late.

  • Do you make it easy for your residents to make their payments?
  • Do they have to go to an offsite office during business hours?
  • Must they pay in cash/check or do you allow for EFT/Credit Card payments?

If you don’t accept credit card payments due to the merchant fee, you’ll be surprised how many tenants would be willing to absorb that cost on their monthly rent to avoid the hassle of writing and mailing a check.

How to avoid tenants paying rent late

It seems clear, then, that late rent payments aren’t always the fault of your tenant. Therefore, you approach sensitive issues with a kind heart whilst making sure you aren’t being taken advantage of.

Step 1. Recognise the warning signs

There are a variety of red flags that arise when people have no intention of paying rent (or the subsequent late fees).

Understanding what these might be can help you separate the tenants who have genuinely good intentions and the ones maliciously not paying you.

Listen out for tenants that say things like:

  • I have 30 days before you can evict me.
  • I filed for bankruptcy, I don’t have to pay rent
  • You can take it out of my security deposit.
  • I’m moving out so I won’t pay.

If you aren’t sure, a simple and honest conversation with your tenant about the excuses they are providing might help you decide whether to give someone leeway or to start looking at late fee worksheets.

Step 2. Ensure tenant requests aren’t pending

Before you apply a late charge for rent, you might want to make sure you aren’t the cause of it.

Although tenants legally have to continue paying you as long as they live in your property, it might be that they’re avoiding paying you for not doing your job.

If they’ve made a reasonable request for a plumber and haven’t had hot water for weeks, adding late rent fees could make a tricky situation infinitely worse.

Step 3. Check-in with your tenants regularly

If you don’t want to be ghosted when rent payments are due, make sure you are building a good relationship with your tenants. Then, if they are facing issues, they are more likely to inform you of them in advance – allowing you to prepare for a hiccup in your cash flow.

When reaching out:

  1. Try not to make assumptions.
  2. Keep it friendly and light-hearted.
  3. Remind the tenant of their contract
  4. Ask if there is an issue.
  5. If there is, see if it’s one you can fix.

Property Manager:
“Hi Sarah, I noticed that your rent is a few days overdue. Just to remind you, it was meant to be paid on the 31st. Is this something you can remedy or are you having issues?”

Tenant:
“Hi, Pete! Thank you for checking in, it’s nice to hear from you again. I’m really sorry, my pay cheque has been delayed – but I haven’t forgotten about it, and will get to it as soon as possible!”

In this instance, the property manager might look back at Sarah’s account and see she has always paid on time This seems like a one-off instance and doesn’t require any further action.

After a week, consider checking in again (regardless of whether they have paid or not).

Property Manager
“Hi Sarah, I noticed your rent has come in. Thank you so much for clearing that, and letting me know what was happening.
Please be reassured that, if you are having trouble again, you can always feel comfortable telling me. These things happen, after all!

Tenant:
“Appreciate that, Pete. I was feeling a little stressed and had a few bills piling up! It’s good to know I can talk to you when something comes up.”

Doesn’t that sound more humane than an abrupt demand to pay rent?

Step 4. Use software to make the process easier

We all love our phones. Who doesn’t?

The average person spends over three hours on digital platforms each day, creating the perfect opportunity for many landlords to introduce online rent collection – giving them multiple payment options.

5. Decide on a case-by-case basis

To avoid late rent payments, you can add late fees into the initial contract. It doesn’t have to be enforced, though. If someone is communicating with you and being open about their problems, you can use this to boost your reputation.

Tenant:
“Hi, Pete. I’ve just received confirmation that I’m one of the layoffs at work. Would I be able to postpone my rent payment at all while I hunt for a new job? Alternatively, can I do a payment plan of sorts?

Property Manager:
“Hi Jim, I’m devastated to hear that. As you’ve been so great these past 2 years, don’t worry about this month’s rent for now (including the fees, I’ll waive those) and we can revisit the situation later. In the meantime, let me know if I can provide a reference for you or help in any capacity.”

How to add late charges for rent

Sometimes, you might encounter tenants that have no intention of paying rent – whether on time or otherwise.

This is when late fees for rent should come into play.

You have a few options, depending on the situation at hand.

1. Start by reminding your tenant of their contract, and then issue a warning notice when someone is late on rent.
2. After a week or two, inform tenants about the consequences of not paying and mention the fees, how much they will add up to, and their legal requirement to pay them.

If this isn’t successful in generating a response, you might decide to issue an eviction notice and call the whole thing a loss.

How to handle late rent payments – FAQs

Late rent payments can be finicky and difficult to avoid but staying informed on your rights is key to combatting issues when they do arise. These FAQs should help.

Can you evict a tenant who doesn't pay rent?
How can I avoid issues with rent?
When should I evict my tenant?
What are acceptable reasons for late rent payments?
Are late rent payments always bad?

MRI’s late rent payment resources

Overall, it seems that your best bet in dealing with late rent payments is to avoid them entirely. You can do so by:

  1. Sending rent reminders by text.
  2. Ensuring your tenants have multiple ways they can pay.
  3. Pre-screening applicants who want to live in your properties.
  4. Incentivising early and on-time payments.

MRI’s property management software can help.

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Voice of the Property Manager Report – 2021 Australian Edition

The property management industry is rapidly changing and understanding the workforce behind it is key in improving your own business. In The Voice of Property Manager 2021 Report, we surveyed 773 property management professionals across Australia to identify benchmarks around key employment issues, satisfaction levels and priorities as well as the overall outlook for the … Continued

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