Collecting Rent: Which Payment Method is Best For Landlords & Tenants?
It should come as no surprise that most young tenants have never actually written a check. Times have changed significantly! The old ways of paying rent are slowly becoming dated and less favorable for today’s generation of renters. Let’s review a variety of payment methods and the pros and cons for each.
Cash is king, as the saying goes. This isn’t always the case when it comes to paying rent though. Many landlords with a room for rent within their home would gladly take cash as payment; however, student housing operators, leasing companies and property managers will likely not accept cash.
- Cash must generally be accepted in person. Landlords and property managers would not want a tenant leaving cash in an envelope at the property or sending it via the mail.
- Cash creates more of a hassle. The landlord would have to pick up the money, provide a receipt each month, and then make a bank deposit immediately.
- Cash doesn’t leave as effective a paper trail for records, especially if it’s not accounted for properly. There are far easier methods of payment for both landlords and tenants.
Checks are most convenient for landlords and property managers, as the accounting process is easiest. When a check clears the bank, it instantly creates a record of payment. The problem is that a lot of student renters don’t have checks, have never written a check, or prefer to pay in a different manner.
Other issues to consider are the potential for bounced checks, associated banking fees, a convenient method to collect checks, etc.
Credit cards are a more convenient method for payment, in comparison to cash or checks. Generally speaking, most tenants will have a credit card(s) to use. Renters can arrange to have their monthly rent paid automatically to the landlord.
However, there are some cons to contemplate. Landlords will almost always incur a processing fee for credit card transactions, unless they transfer these charges to the tenant. In addition, renters can file chargebacks where they dispute the charge. In this case, the landlord must promptly respond to the dispute and provide detailed documentation for the transaction, to prove that the amount should not be refunded. Chargeback disputes are rare but when they do arise, the credit card company often sides with the cardholder.
Electronic Deposit or E-Transfer:
Electronic deposit typically involves a tenant transferring the rental money to a landlord’s bank account, directly through online banking. This option is becoming preferable to students, as it is cheap (there may be minimal fees to the tenant for transferring the funds), it’s extremely quick and incredibly convenient. Electronic deposits or E-transfers can be done through any online banking service and it only takes a minute or two.
The only downside for this type of payment is that the landlord must provide tenants with a bank account number and many property owners do not want to disclose such personal information. As a solution, some landlords opt to create a separate bank account, specifically used for deposits from their rental units.
PayPal can be a good option for both landlords and tenants. Most people are familiar with the platform and it only takes minutes to sign up for an account. If both the tenant and landlord have PayPal accounts, they can easily transfer the money using the payee’s email address. Automated payments can be set up as well.
The major downsides to PayPal, however, are the fees associated with a merchant account and the transaction fees. Transaction fees are generally around 2% and a merchant account on PayPal costs approximately $30 per month.
Tilt, Dwolla or Similar Tools:
These tools are relatively new, but they are becoming increasingly popular ways for landlords to collect rent. These tools are essentially online payment services that either charge a very small transaction fee or, in some cases, are free. For example, Tilt doesn’t charge landlords to collect money and contributors do not pay a fee either, if they use a debit card. If a credit card is used, a 3% processing fee applies. These options are great for both landlords and tenants because they are easy to use, cost-effective and users don’t need to share bank account information (between landlords and tenants). Dwolla is similar to Tilt, but they charge .25 cents per transaction.
Ultimately, each landlord must choose which payment method works best for both themselves and their tenants. A cost-effective, convenient and easy-to-use rent collection process is a top priority for landlords.
Originally published at www.places4students.com.