How to Use a Rent Grace Period to Avoid Late Payments

As a landlord or property manager, you probably spend too much time collecting rent payments. In addition to wasting your time, when your rent payments don’t come in on time, lowering your cash flow, complicating your relationship with your tenants, and resulting in costly evictions.

It’s difficult to survive in your rental business—let alone grow—when you’re dealing with late payments and potential evictions. Here are several ways landlords can optimize a rent grace period to reduce late payments from tenants.

TL;DR

Depending on state laws, landlords can use grace periods and late fees to motivate renters to pay on time. Other tools include insuring that the lease agreement clearly states everything related to rent due dates, grace periods, late fees, eviction, and payment options. Including very clear descriptions of these issues in your lease agreement will help avoid late payments.

The Number of Tenants That Pay Rent Late is Rising

Late payments are a big problem for every landlord or property manager. According to CRE Daily, late payments reached 11.7% in June 2025, up from 8.8% in the middle of 2024.

This problem causes a disruption in your cash flow, and may lower your ability to pay maintenance fees, insurance, and other operating costs. You may also find yourself involved in more evictions. Focusing on using all the tools available will help you to avoid late payments and can change your tenants’ rent payment habits. Let’s review six key tools that can help you avoid late payments.

Start By Reviewing and Updating Your Lease Agreement

Communication with your tenants is one of the best ways you can change rent payment habits and avoid late rent payments. Your lease agreement is the final legal authority on the rules you set for your tenants, so make sure that your lease clearly explains everything related to paying rent. Use your lease forms wisely to cover all situations that need to be documented.

Everything that governs rent payments as we discuss below should be clearly explained in the lease agreement. It’s also a good idea to personally review that part of the agreement with all new tenants. You can eliminate any misunderstandings about your policy, and make sure new tenants know how you will work with them to avoid late payments.

State and local laws govern most policies described in your lease, so be sure to review the statutes that govern landlord and tenant issues in your area.

Clearly Define When Rent is Due

Rent is typically due on the first of each month. This is especially helpful if your leases always start on the first of a month, but other due dates can be used. Rent is typically considered paid when the landlord receives the payment, not the date when it was mailed. In the case of electronic payment, the payment is typically considered received when the electronic transaction is initiated because there is immediate verification.

However, when your standard due date falls on a holiday or weekend, typically landlords will consider the rent paid on time if it arrives on the next business day. Check with your state and local laws to determine if the laws address this issue.

Write this language in the lease agreement very simply and clearly. Just writing that there is a five-day grace period after the due date could easily be misconstrued. It would be better to write something like this:

• Rent is due on or before the first day of each month. Rent payments received on or after the seventh of each month will be considered a late payment.

Understand the Grace Period for Rent Payments

A grace period defines the number of days after the due date that will determine when the rent is late. A typical grace period can be one to five days. For example, if the due date for rent payment is on the first of the month, and you have a five-day grace period, rents would be considered late if they are received on the seventh or later.

Check with your state to identify the laws that govern your business:

• Some states require a grace period of a specific length before you can legally consider the rent late and apply a late fee. For example, Connecticut law mandates a nine-day grace period for renters on a monthly lease.
• Some states don’t mandate a number of days for a grace period, but landlords can’t charge a late fee until the rent payment is a specific number of days overdue. For example, Massachusetts doesn’t require a grace period, but landlords can’t charge a late fee until the rent is 30 days past due.

Set a Specific Day Grace Period

A grace period is a good way to build trust in your relationship with your tenants and to help you and your tenants avoid the stress of late payments.

The grace period also helps the tenant in situations where there can be common delays. Here are some examples:

• The mailed check could be delayed as it goes through the post office.
• Paychecks could be delayed.
• Bank processing time for electronic payments could be longer than usual.

It’s an important issue, as California recognized when it passed a law to protect a tenant from eviction if there were a delay in Social Security benefit payments being received due to no fault of the tenant. Establishing a grace period helps cement your relationship with your tenants and shows that you are flexible when it’s reasonable.

Use Late Fees When Tenants Pay Rent Late

What can you do if a tenant is late paying their rent? Many things a landlord might consider aren’t legal or can be challenged in court. For example, it is typically illegal to shut off utilities, change locks, or block mailbox access.

In most cases, the only legal action you can take when a tenant is late paying their rent is to send a late fee notice or a “pay or quit” notice.

• Late Fee Notices: This notice is a reminder for the tenant that their rent is late, and it describes the late fee process. Late fees cannot be applied until the grace period is over.
• Pay or Quit Notices: These notices give the tenant a date by which they must pay their rent or move out to avoid an eviction. Almost every state has specific rules defining how these notices can be used. Some states require landlords to issue this notice before an eviction process can begin.

Including a late fee does appear to work to motivate tenants to pay online. According to the Consumer Financial Protection Bureau, about half of renters who are hit with a late fee start paying on time.

The way you charge late fees is another subject that is controlled at a state level. However, there are several ways that you can set up late fees, depending on your state statutes. Keep in mind that many states have a maximum cap on the amount landlords can charge. In case of a dispute, the courts will typically look for the landlord to charge a “reasonable” amount.

• Percent of Rent: In this situation, the fee is a percentage of the overdue rent, which often run between 5% to 10% of the monthly rent amount.
• Flat Fee: The late fee can be a flat fee, regardless of the rent amount.
• Per-Day Fee: This fee accumulates for every day the rent payment is late; for example, if the late fee is $10 per day and the rent is three days late, the fee would be $30.

For a tenant who is working with you to avoid late fees, you might consider setting up a payment plan if the tenant can’t pay both the overdue rent and the late fee at one time.

Use Evictions When Necessary

No one wants to force a tenant to move out, but as a business owner, you can’t afford to let a tenant live rent free if they can’t pay their rent. Your state will mandate how you should start eviction proceedings. You may want to seek legal advice to make sure your eviction procedures are in line with state and local laws.

It’s also helpful to review your tenant screening procedures. One of the best ways to spot a tenant who may be an eviction risk is to check public eviction records.

Use Online Rent Collection Software

Rent collection software can help to reduce late payments. It’s an easy way for tenants to make sure they don’t forget to pay their rent—one of the most common causes of late payments.

Using rent collection apps is a convenience for the tenant, and can save you time and stress. Your tenant can set up automated payments that are paid automatically on the due date or before. The payments can be made using ACH transfers or credit card payments. In addition, the tenant will receive reminders before the rent is due noting the date the automated transaction will take place.

There are benefits for you, too. The rent reminder is sent automatically, and late fees can be triggered automatically. Rent collection apps are more secure than other payment processes. The software relieves you from the tasks of posting monthly fees, generating invoices, applying late charges consistently, generating reports, and more. Make sure to include the different ways tenants can pay rent in your lease agreement.

Final Thoughts

Unfortunately, there’s no magic bullet that will make late payments go away. Just setting up a grace period for rent payments won’t do the job, either. But as a landlord, you have tools available to you that will minimize the problem.

It’s important to make sure you’re following all the laws in your state and local area. You need a lease agreement that clearly defines all the guidelines that you put in place. And you need to make sure that your tenants understand the guidelines and can follow them. There is typically a lot of legal jargon in a lease. But the things that are critical to managing the rent collection process need to be in plain English.

Regardless of the size of your rental property, you’ll find that using online rent collection software will make your life easier and provide your tenants with conveniences that will encourage them to rent with you.

TenantCloud gives you the tools to manage the entire rental process, far beyond rent collection. Other tools include tenant screening, automatic bank reconciliation, customizable lease agreements, maintenance request management, and much more. If you want to see how easy being a landlord can be, start a free 14-day trial today!

FAQs

How do I find renting rules in my state?

Typically, the Attorney General’s office in your state can provide information about landlord-tenant issues. Some states have a Landlord-Tenant Handbook that is often available online. Your local governments such as county and/or city may have laws that impact landlords. You may also want to seek legal advice.

What’s the best way to screen tenants?

Look for property management software that has a robust tenant screening capability that includes credit checks, income verification, rental history, eviction history, and local and national criminal background searches.

Is there software that combines all required functions?

All property management software packages are different. It’s important to compare the options against your needs to find the best one for you.

What is the best length for a grace period?

There is no optimum length for a grace period. Start by checking on the laws that address rent grace periods in your state and local governments. Then, choose the length of your grace period based on your tenants’ issues with paying on time, such as delays in receiving paychecks.