4 Ways to Accept Rent Payments and their Pros and Cons
As a property management company, you want to make sure your tenants can pay their rent on time every month. To ensure this, it is a good idea to accept several methods of payment ranging from cash to electronic debits. Let us look at the variety of payment methods that are commonly accepted and the pros and cons of each one.
Cash is king. It is convenient and accepted by nearly every business. It is the most liquid form of payment and usually readily available to tenants. However, accepting cash as a property management company is the riskiest payment method to use.
Either the tenant or the company can lose cash and if it is lost, the cash is gone. Cash stolen from either the tenant or the company and just like when cash is lost, stolen cash is difficult to replace. Cash is also difficult to track and leaves no paper trail making it suitable as a tool of criminal activity. Many property management companies refuse to accept cash because of the risks involved.
Checks and Money Orders
Acceptable alternatives to cash are checks and money orders. These provide a similar amount of liquidity as cash. Checks are advantageous because they provide a paper trail and if they are lost or stolen, you can cancel them simply by contacting the bank and requesting a stop payment. The bad thing about checks is that if the account has insufficient funds, the property management company will likely not collect the rent.
Money Orders are equally safe to accept and have the advantage of not having to worry about the funds being readily available. However, if the money order is lost or stolen, like cash, they are difficult to replace because the tenant needs the same amount of money to obtain a new money order.
Credit and Debit Cards
While not all property management companies accept this form of payment, accepting credit and debit cards is becoming more popular due to the ease involved. All your company needs is a credit card terminal and you are ready to accept payment from your tenants. The drawback of accepting credit and debit cards are the processing fees charged for each transaction. As they tend to be a percentage of rent, these charges can quickly add up. Accepting credit and debit cards makes the most sense if you have a high number of transactions. In addition, if your state allows, you may be able to charge a convenience fee to help offset the costs.
Finally, we have the electronic debit, possibly the best way to collect rent. By having your tenant set up a payment through their bank to send rent to your bank electronically, you practically eliminate any risks involved with cash, checks, and money orders. In addition, the fees associated with electronic debits are much lower than those for credit and debit card transactions. Tenants can also arrange for recurring payments making it the most convenient of options for rent payment. Unfortunately, like checks, if the funds are not available in the tenant’s account, then the bank cancels the transaction and the tenant’s rent payment.
Review these options and see which ones are best for your business. Make it as convenient for your tenants to pay their rent to encourage them to pay on time every time. See if the costs involved with accepting credit and debit cards and electronic debits are worth adding the payment methods to your property management company.