Late Payments: an Important Part of Every Rental BusinessNovember 12, 2018
Being a landlord involves moving in tenants, collecting rent payments, and solving the usual rental problems, such as looking for an experienced service professional to fix a dishwasher or clean snow off the porch. It also means creating convenient conditions for both landlords and tenants to build solid business relationships.
One of the most fundamental aspects of effective business interactions in the property management sphere are clearly defined policy conditions in the residential agreement document. Every detail of the lease must follow local laws and should be described in clear language. This will basically deal with the financial side of property management and, more generally, the late payment fees. Probably every landlord has heard of this option, while half of them use it to keep rent payments under control. But for those who wonder if it’s worth charging late fees, let’s look at the subject from a different perspective.
Take a few minutes to review the points below:
Late Fee Guarantees
Landlords are responsible for a lot. Every day they make multiple property-related decisions. It’s no surprise, then, that most of the difficulties landlords face are connected with finances. In the property management world time is money, and receiving rent on time keeps a landlord even-minded. No matter how many properties one owns and manages or how stressful the overall process might seem, if a landlord has certain guarantees that the rent is paid before the due date, they can focus on other aspects of their business. Reliance on a late-fee policy is both convenient and time-saving.
One important thing to mention here is that the amount a landlord is allowed to charge as a late payment fee is defined by state and/or local laws. Most landlords use a flat monthly percentage, rather than a flat amount on a daily basis. The average late fee percentage is 10% per overdue rent payment with a minimum five-day grace period. This process can be done manually, but why waste time and effort if there are tools that can help you make it automated? For example, TenantCloud has a late fee option that is simple and easy to set up. This is what stress-free property management actually means.
Psychological Aspect of Late Payment Fees
You may ask how property management and psychology are connected. At first it might seem like they have nothing in common, but let’s dig deeper. People do care for their money, whether they’ve just won the lottery or are paying rent. If a tenant can get away with waiting to pay rent without penalty, they will. The longer you allow it, the later the rent will be. Before long the rent might be paid at the end of the month.
Collecting rent on time requires a serious commitment to late fees and a standard method of implementation. Using software that acts as a third party to enforce the lease agreement makes this an easy process for you and your tenants. If the rent isn’t paid online by a specific, set date, the late fee will be created and become immediately visible to all parties. No one wants to pay more than expected if they initially could have provided the original cost.
Reasons Why a Landlord Should Not Waive Late Fees
Let’s face it--life is unexpected, and even business relationships can sometimes suffer due to certain personal circumstances. Yes, it is very noble to put yourself in another person’s shoes and express tenant-focused gestures to establish good, trustworthy relationships. If a tenant can clearly explain why a late payment fee should be waived, a landlord can make an exception in cases where they have been notified in advance. However, one reasonable thing to remember here is that the tenants might get used to these exceptions and regularly pay late--a circumstance that could eventually result in eviction. In addition, an experienced landlord or property manager will gain a better reputation by treating each renter equally.
From a financial perspective, another reason a landlord should be firm about their policy is the fact that late fees may be ignored by the tenant--meaning they provide their regular rent but disregard late fee invoices. This will lead to an incorrect balance, creating further inconvenience within your accounts. Keep in mind that some property management systems, including TenantCloud, have developed an immensely convenient option wherein a tenant can receive reminders to resolve unpaid late fee invoices.
Hopefully, the above-mentioned information was helpful and you’ve seen the benefits of charging late payment fees. We’d love to hear what you think! Leave a comment below and let us know whether you use late fees to stay on top of your finances.