How to Automate Your Collections

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 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 CheckMan 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.
Sincerely,

Tim Randle