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?

An interesting article titled “Incentive for Paying Rent on Time” poses a question to its audience about adding a clause to their company’s standard lease that triggered a $100 increase in monthly rent if the tenant was late for two consecutive months.

The response was overwhelmingly against this, although the reasons cited varied greatly. Many people felt that a “carrot” approach (such as an incentive program) was much more effective at encouraging on-time rent payments – rather than using a “stick” such as a rent increase penalty.

It seems, then, that late fees for rent aren’t the only solution.

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 behavior 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 Outdated systems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. Recognize 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?

Yes! If a tenant does not pay rent on time, then you can seek to evict them with your standard notice period. Grounds for eviction vary by state, so check your local regulations to see how soon you can regain possession of your property.

How can I avoid issues with rent?

The best things to do are: be clear with your expectations; make sure your tenants have a variety of ways to pay rent; and communicate with them. Therefore, you can anticipate a late payment and protect your cash flow.

When should I evict my tenant?

You can evict your tenant if they aren’t paying rent, have destroyed your property, are being disruptive to the community, or have violated other aspects of the lease agreement.

What are acceptable reasons for late rent payments?

If your tenants are experiencing a personal or financial crisis, be kind and make exceptions. These are valid reasons as to why a tenant can’t pay rent and shouldn’t be an immediate cause for concern.

Are late rent payments always bad?

No, not at all. It is entirely possible that, if your community is large enough and has high enough rent, then a few of your residents paying late might not be an issue. You could actually lose money by trying to get on-time payments.

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. Prescreening applicants who want to live in your properties.
  4. Incentivizing early and on-time payments.

MRI’s property management software can help.

Ebook

Market Insights: Impact of COVID-19 on the Multifamily Industry, July 2022

Multifamily industry data July 2022 The MRI Software Market Insights team continues to track the trends of the multifamily industry. This report looks at data from the 2020 pandemic era through July 2022 and provides year-over-year comparisons. The multifamily sector has seen a strong rebound from the effects of COVID-19, but the busy summer 2022 … Continued

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