How To Automate Your Collections

How To Automate Your Collections

By Tim Randle 

Having been a landlord since the early part of 1994, I feel fairly safe in stating I've tried almost every imaginable way of collecting monthly payments from my residents. I want to run through some of these methods and let you in on the pros and cons of each technique. I'll wrap it up by telling you what I do now.

Personal Collections

Scheduling appointments to pick up payments was never even a consideration for me as a standard way of doing business. I'm too lazy and I consider it the resident's responsibility to pay me if they want to stay. The advantage is that you know right away who's paid and who hasn't. You still don't know if the check will clear with good funds, assuming you weren't paid in cash or certified funds.

Of course, I've met with residents to pick up payments on special occasions when the resident was late or trying to avoid late fees. Again, this is a waste of time in my opinion.

I now have a designated place for the residents to drop off payments if they want to go this route. Also, for chronic late payers, they lose the privilege of paying any other way than by certified funds at the drop box. Once they've paid consistently and timely for six months, I'll consider reverting back to the standard pay system I'll discuss later.

If you do decide to meet your residents to collect, I highly recommend NOT meeting at your personal residence. Do not allow any of your residents to know where you live. In fact, my opinion is that you should have an unlisted telephone number for your home line and that you should spend as much time as necessary removing personal information from the various internet directories. Sorry for the tangent here, but I thought it important enough to include.

I don't recommend this method as it requires too much effort on your part.

The Check's in the Mail

This is probably the way everyone starts out. The payment doesn't arrive and the resident claims it's in the mail. If it arrives, is it even good? Who knows? The advantages to this method are that it's very common, and if you have a great tenant, it can be a low hassle way to collect payments.

The disadvantages include reliance on the resident's memory to write the check, correctly address the envelope, place the correct postage on it, and actually drop the payment in the mail. Additionally, you then rely on the postal service to deliver the payment to the correct address and in a timely manner.

I've even gone as far as providing payment coupons and self-addressed stamped envelopes to residents to remove some of the risk associated with this methodology. I didn't find this added effort to produce any noticeable difference in the results.

I don't recommend this method as it requires too much Involvement from your resident.

Resident Makes the Deposit

I realize many of you will completely balk at this idea, but I've tried it for years now with some success. Prior to having a drop box location, I would give my late payers a bank account number to which they could deposit the monthly payment directly.

Naturally, I graduated from that step to providing deposit slips that were pre-printed so the account name and the account number wouldn't be inaccurate. In this case, this added effort did reduce the monthly "I don't have such and such information" telephone calls from the residents. I was never that concerned about a resident attempting to make a withdrawal from my account, although I'm sure that's a possibility. To decrease this risk, you could have a separate bank account for deposits and sweep the funds into another account periodically.

Another consideration here is that potentially you could run into a failed eviction for accepting partial payments. Whether or not a judge would consider a tenant making a small deposit in a last ditch effort to avoid eviction "constructive receipt", I'm not able to answer. So far, (knock on wood), none of the folks I've evicted have tried this angle.

However, what will invariably happen is that residents WILL make partial payments. The truck broke down, the child custody legal fees, etc. get prioritized over shelter and what few remaining funds there are end up in your account. Then you're left with the fun job of trying to determine who paid what.

Advantages to this method are that you don't have to make a trip to the bank and if you have online banking, you know within a day or so if the deposits are there. Again, you don't know whether or not they paid in pennies or stolen checks from their neighbor, but you at least see the deposit made.

I don't recommend this method as a standard way of collecting, but perhaps consider it for the good payer who's just had a bad month.

Print the Checks for Them

(Thanks to Earl B. for the following tip)

I forget when it was, but probably sometime around eighteen months ago, one of my friendly competitors suggested I try this service. One of his friends was using it with success so I signed up for it. It's inexpensive and allowed me to just sit down and print all the monthly payments at one time. I signed all new residents up on it and bribed some of my existing residents to join.

The service is presented to the residents as an auto draft service and they sign off on a one-page form that authorizes you to debit their account. The program itself is a Windows-based software application that allows you to print these "Demand Drafts".

The advantage is that the payments can be set up as a recurring monthly payment and you can print them whenever you want. So, rather than waiting for the mail to arrive, you just sit down at your PC and hit print. The checks roll off your standardized printer. In other words, you don't need any special equipment. On the first of each month (or whenever) you just head on over to the bank.

Again, you don't know if the resident has good funds or not, but at least you're not waiting to make your deposit. One of the disadvantages is that you will have to purchase check stock, but I believe I received 300 checks with my initial purchase.

Another advantage to using this software is that you could set up your own bills on this so that each month you just print out your recurring bills or a set of blank checks with your pre-printed information.

I no longer use this method, but can recommend it as It worked well for me.

Direct Deposit

For the last year I've been using a new service I found. I searched high and low for a reliable, quality direct deposit service that wasn't designed for the huge apartment complexes. Everything I stumbled upon had a fee structure that priced it way out of my league.

Again, as before with the software application, I signed all my new residents up on it (company policy, don't you know?) and bribed some of my existing residents to join as well. I think it's fantastic.

Residents receive an email notifying them of the coming draft and it all runs through the banks Automated Clearing House systems (ACH), so there's absolutely nothing that I have to do.

The resident's account gets debited automatically on the designated day and I receive an email the next day that shows me which accounts were drafted successfully, and which failed, if any. Three days after that, the funds are automatically deposited into my account.

The residents know it's coming and since it's automatic like other bank drafts, it requires no effort on their part. It also requires no effort on my part. It's the simplest solution that I've found and very affordable to boot.

Tim Randle is the founder of http://www.REIClub.com, one of the web's best online resources and communities for creative real estate investors. To view over 800 other real estate investing articles, please make sure you visit real estate articles today!

Article Source: http://EzineArticles.com/?expert=Tim_Randle