Landlords need to find an efficient way to collect payment for rent, but collecting payments is not simply about receiving the money. There are good and bad practices when it comes to rent collection.
Pros and Cons of Each Payment for Rent Method
There are several ways landlords can collect payment for rent, but what method should landlords choose? It can be hard to decide because there are so many. Let’s take a look at the payment methods and examine their advantages and disadvantages.
1. Cash Payment
Some regard cash as one of the worst payment for rent collection methods out there, but is it truly the case? Is cash an unreliable way to collect or receive rent payment? Here are its pros and cons.
- No risk of errors in the transaction
- Liquidity makes it easy to spend on other expenses
- No risk of cancellation from the tenant
- Cash payments cannot bounce like checks
- No bank or transaction fees to pay
- Prone to theft or loss
- Harder to retrieve when lost because it is untrackable
- Susceptible to miscounts, leading to underpaying or overpaying rent
- Leaves no evidence or paper trail, so it’s harder to prove what has been paid and how much
2. Peer-to-Peer Payment
Tenants are always eager to pay rent online. Apps like Zelle, Venmo, and PayPal are convenient, instant, and widely accessible. So are peer-to-peer payment apps truly the ideal payment method for both parties? Let’s examine how it can benefit or harm landlords or tenants.
- Apps are convenient, as payment can be made with just one tap
- Payments are quick, and they deduct from tenant accounts straight away
- Widely accessible to everyone as account registration is the only requirement
- Tenants can use money from multiple funding sources like banks or debit cards
- Transaction limits
- No way to set up payment reminders
- The tenant may accidentally send money to the wrong account
- May have technical issues or errors
- May cost a transaction fee
3. Personal Check
Checks are one of the most common rent collection methods. They’re a timeless mode of payment so it’s understandable that many tenants and landlords prefer them. But, like other payment for rent collection methods, it can have its benefits and pitfalls.
- Liquidity makes it easy to cash in and spend
- Portable and easy to send via mail
- Easy to store
- Lost or stolen checks are easier to deal with as they often have the landlord’s name written
- Post-dated checks can be used to pay rent in installments
- May be prone to bounce because financial institutions do not verify them
- Charges a bank fee to the tenant if the check bounces
- Tenants may cancel personal checks without warning
- No guarantee of a tenant’s capacity to pay
4. Direct Deposit
Direct deposits can seem like the most convenient way to pay rent. But, while it may seem quick and easy, it has drawbacks that both landlords and tenants should consider.
- Instant transfer of money
- No transaction fees
- Easy to track and record
- Leaves a paper trail as evidence of payment
- Easy to set up automatic withdrawals
- Inconvenient for tenants because they need to travel to the bank
- It’s a security risk for landlords who must share their account and routing number
- Tenants may be late for rent if the account has insufficient funds
5. Bank Draft / Cashier’s Check
What is the best way to collect rent as a landlord? Many argue that bank drafts and cashier’s checks are foolproof methods. But, they aren’t always the best payment for rent collection methods for tenants. That’s because there are disadvantages for them that landlords should also consider.
- Bank drafts and cashier’s checks do not bounce because they source funds directly from the financial institution
- Not prone to theft because the check has the landlord’s name written
- Tenants must travel to the bank regularly to get these written
- Financial institutions may charge fees for them
- Tenants must have enough money in their accounts to pay the financial institution
6. Certified Check
Certified checks are checks verified by financial institutions. They sometimes come with a seal, stamp, or signature as a sign of verification. This type of check is more secure than a personal one. But is it the best choice for landlords and tenants? Here are its advantages and disadvantages.
- It is more secure because banks guarantee the tenant has sufficient funds
- Less prone to bouncing
- The bank only guarantees the tenant has sufficient funds when the check is written
- Banks charge a fee to write a certified check
- Inconvenient to obtain as tenants must regularly visit the bank
7. Money Order
Money orders can seem to be more secure because they’re a form of payment that uses physical paper. Here are the ways they can help or disadvantage landlords and tenants.
- Not prone to theft because they have both the landlord’s and tenant’s names written
- Money orders cannot bounce
- Multiple institutions offer money orders, including banks, check-cashing stores, pharmacies, convenience stores, and grocery stores
- Money orders do not require a bank account
- Tenants must pay the money order when they request it
- Money orders cost a fee
8. Credit Card
Renters are entitled to affordable housing according to their bill of rights. But, even when the landlord comes up with a fair rent price, tenants may still struggle to pay monthly rent. This is where credit card rent payments can come in. As a general rule, landlords should only use this method as a last resort. That’s because they come with a lot of caveats despite being secure.
- Convenient for tenants who do not currently have sufficient funds
- Secure payment method for the landlord
- Requires the use of third-party services like Plastiq or Venmo
- Charges fees to the tenant’s account
- May take days, weeks, or even months for the money to reflect on the landlord’s account
9. Rent Collection Apps or Property Management Apps
The best payment for rent collection method should be fast, convenient, and secure. What is the most suitable way a landlord can let tenants pay rent? Most people argue that rent collection or property management apps are the best way to pay rent electronically. These are convenient for both the landlord and the tenant and have several advantages. But, they do have a few caveats landlords and tenants must consider.
- These apps do not require the landlord’s private information
- Funds go straight to the landlord’s account
- Easy to set up automatic transfers to avoid missed payments
- Accepts various payment methods from tenants, including bank transfer, debit card, or credit card
- These apps are more convenient because payment is one tap away
- Requires the setup of a rent collection or property management app
- These services may cost money to use
- May be prone to technical errors
- Different apps will have varying levels of security and reliability
Good Collection Practices
There are many ways to collect payment for rent. But, each one will have its pros and cons that should be considered. Landlords should choose a payment method that is convenient, secure, and accessible for both them and the tenant. Otherwise, they may face various issues that can lead to late or unpaid rental payments.
Are you having trouble collecting rent from your tenants? If so, we recommend looking for a property management company. They can handle the rental collection process and even give you access to a rental collection app. Find one today through our online directory!
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