Tips on Accepting Rent Payments Online

As digital banking and other online commerce continue to expand, the trend toward accepting rent payments online is becoming an increasingly attractive both for tenants and landlords. When done correctly, accepting rent payments online provides solid tracking of accounts and allows renters to pay any time, eliminating many common excuses for late payments.

Accepting rent payments online saves time and effort landlords as well as tenants. From the tenant’s point of view, having the option to pay anytime removes one more task from their to-do list while they travel around town. Landlords and property managers enjoy the fact that accepting rent payments online allows them to track accounts quickly and accurately. This translates into better fewer late or delinquent accounts and better cash flow overall.

At the same time, accepting rent payments online is not automatic. Creating a smooth transition to this new system requires proper planning and implementation. In order to increase the likelihood of instituting a smooth transition, landlords should pay attention to the following issues that may arise:

First, landlords should make sure they understand the computer literacy of their tenant population. Tech-savvy tenants may actually prefer living in a complex that is committed to accepting rent payments online. Other types of renters, may shy away from this option unless they receive thorough education beforehand.

Second, even the best system for accepting rent payments online needs a back-up. Landlords should avoid relying exclusively on an online system. For one thing, maintaining alternative payment options provides a comfortable alternative for people who still wish to pay rent in more traditional ways. For another, technology is notorious going offline. Having a hard-copy back-up payments plan will almost certainly be worth its weight in gold one day, should the online system crash.

Third, when instituting a system for accepting rent payments online, landlords should clarify who will pay for transaction fees from the outset. Most banks include transaction fees in exchange for transferring online payments to bank accounts. There are two options to deal with this challenge. Landlords can foot the bill themselves, or they can include the charge in the rental fees from the beginning of the agreement. The key here is to make sure tenants are not required to make a separate payment for this fee. That could spell havoc. 

Fourth, creating a system for accepting rent payment online requires patience on the part of the landlord.  Most banks take a few days to process online payments.  Also, many holidays as well as weekends interrupt the processing time.

Fifth, any system created as a means of accepting rent payments online must be secure. One hacking incident can destroy the whole experiment. Hackers will not stop if they believe they can eventually strike gold. The move to an online rent collection system must clear this hurdle in order to avoid endless legal battles down the road.

Finally, accepting rent payments online means creating a website, and creating a website means there will be website issues. Landlords must realize that as efficient as any system is, they will still be called up to deal with technical support. In addition, they will also need to provide answers to tenants on how to use the website correctly.

Collecting Rent Online: A Trend that is Here to Stay

The move toward collecting rent online will continue to gain momentum as digital banking services become increasingly convenient and secure.  Tenants enjoy the time-freedom of the arrangement, while landlords enjoy the accuracy of these systems and the ease with which collecting rent online allows them to manage their accounts.

Most real estate experts agree that the trend toward collecting rent online is about to spike off the charts. With more than 35 million Americans paying rent each month, the market for such systems is certain to remain strong.  Just four years ago, more than 90 percent of Americans still paid their rent by writing a check, while just 6 percent handled this monthly task online. As mobile banking expands, these figures are almost certain to reverse themselves.  In a matter of a few years, the option of collecting rent online will be considered an essential part of rental agreements.

From the point of view of residents, the move toward collecting rent online offers a welcome convenience.  This is especially true for college renters, many of whom have their rent paid for by their parents.  It is much easier for parents to pay rent electronically, at any time of day or night, than having to send a check through the mail. 

In addition, the option of collecting rent online helps tenants avoid late fees.  Our over-scheduled, distracted society means makes it much easier to miss a rent deadline, even for the most conscientious tenants.  It also allows tenants to pay on time via credit card if cash is tight and pay the balance later.  Paying online via credit card also gives tenants the option of acquiring various reward incentives they would not receive if they paid by check.

Landlords favor collecting rent online, because it lowers operating costs and improves cash flow.  For a large complex, traditional methods of collecting rent require a significant investment of time and effort.  These include processing paper checks, making sure the payments are posted in a journal, filling out deposit slips, and taking time to go to the bank to deposit the money.  Collecting rent online automates the entire system, freeing up countless hours of work. An online system also tracks payments quicker and with more accuracy. Bad checks are identified very quickly, which reduces the risk of fraud.

Collecting rent online also helps close the deal. In some instances, landlords lose good renters because they are waiting for a security deposit from their previous landlord.  Offering an online option helps close the vacancy much sooner than traditional payment methods.

At the same time, the landlords and property owners should be recognize that transition to an online system may entail some challenges.  The administrative changes involved in the change can be frustrating at first for staff members.  For example, integrating the new system with the current software used to manage accounting and property management must be coordinated. In some cases, the office still employs somewhat dated software that possesses far less flexibility than web-based platforms. If the two systems remain poorly integrated, landlords may find that the time they save in collecting rent online is spent in other tasks, such as reconciling account ledgers or having to enter payments manually into the existing property management software.

Still, as online providers create new techniques that provide seamless integration, these glitches will fade.

Transaction fees also present a challenge for landlords as they implement their decision to begin collecting rent online. If tenants pay by credit card, the typical transaction fee of approximately 2% to 3% may affect profit margins. For larger complexes, the fees can add up to significant amounts. Since research indicates that renter dislike paying convenience fees if those fees are added to the cost of rent.
Given the fact that neither side enjoys paying convenience fees, the market is likely to correct itself via shared fees.  Alternatively, landlords may find ways of building in the cost of transaction fees to other parts of the rental process, so that the cost appears more palatable to new renters.

Even in the face of fees, one thing remains certain with regard to collecting rent online: the process is here to stay.  College students have already embraced the idea fully, for example, which portends a growing trend for the future.  As the transition to a completely digital society intensifies, collecting rent online will simply be a part of the mobile, digital economy.

How to Encourage Tenants to Pay Rent Online

Landlords who want their tenants to pay rent online should create and adopt a best-practices policy before implementing a new system.  Once the process has been ironed out, most research indicates that both tenants and landlords prefer the convenience of being able to pay rent online.  Going digital eliminates the hassles involved in manually collecting and logging rent, reduces errors and late payments, and improves efficiency.

Not so long ago, creating a system to allow tenants to pay rent online was still out of reach given the existing technology at the time.  Landlords loved the concept of having their tenants pay rent online, because it held the potential to reduce the headaches involved in collecting rent while improving efficiency and increasing the bottom line.  However, they knew the option would have to wait until the technology could be seamlessly integrated into their existing administrative infrastructure.

In the last two years, however, the trend toward being able to pay rent online appears to be gaining momentum.  Most experts believe a tipping point has been reached, and that within a short period of time, the vast majority of tenants will opt to pay rent online.

For landlords and property managers who have not yet transitioned to this form of rent collection, a number of options exist in terms implementing the new system:

One option is to partner with online rent payment companies. Though many landlords believe they are better off doing everything themselves, increasing numbers recognize the value of outsourcing administrative tasks.  They understand that working with a company that specializes in handling the process of allowing tenants to pay rent online makes for good time management.

At the same time, experts caution that choosing an outside company for this task requires good planning and testing before rolling it out.  If the new system fails to integrate with existing accounting software, it can lead to months of administrative headaches. As such, landlords and property managers should carefully examine each option before signing on the dotted line.

A second option for landlords interested in having their tenants pay rent online is to work with their current software provider.  The creators of property management software are also keenly aware of the mobile, digital transition occurring in the marketplace. While these companies may not be the first to offer online solutions, there are benefits to waiting until their product becomes available. Chief among these benefits is the knowledge that the new system will be tightly integrated with existing software.

Third, most banks will readily work with landlords to create a system that allows them to send and receive electronic checks or credit card payments.  While the implementing this system can be logistically awkward at first, it does represent a very cost effective method of allowing tenants to pay rent online.

When choosing between options, landlords should investigate the answers to a few important questions.  First, what are the true costs involved in moving to an online system.  Evaluate such factors as setup fees, transaction fees, and other monthly costs associated with the transition.  If tenants pay these fees, landlords should keep an eye on the cross point between fees and adoption rate.

Second, any system that enables tenants to pay online must integrate with current accounting procedures in the office.  Does the option under consideration allow for this?  In some instances, the system generates an export file, but that file must be manually imported to the end user’s system, adding a step in the reporting process.

Third, is the system under consideration user-friendly? Many packages offer what at first blush appear to be total solutions. However, once the tenants actually try to pay rent online, they find that the interface is not intuitive.  Landlords should remember that anything claiming to save time and effort must deliver on that claim. Otherwise, tenants will stay with the tried and true method of putting a check in the mail.

Assuming landlords or property managers do find a workable system, the next challenge is to create sufficient excitement to encourage tenants to sign up to pay rent online.  While this should not create needless expenses, offering monetary incentives in the form of gift cards, or prizes determined by a drawing can get the ball rolling. 

Another strategy is to adopt a phase-in period during which all new residents will be required to pay rent online, while current residents have a period of time to opt-in.  When dealing with a large complex of stable renters, this transition should have a long runway leading to implementation. It should also include back-up procedures for those who, for whatever reason, have difficulty changing their rent-paying habits.