When a tenant falls behind with his or her rent payment, it can have a severe impact on landlords and property management companies. One way this can be addressed is by charging a late fee. This is an option than some landlords take to motivate residents to make their payments on time. So, is the threat of a late fee an effective way of collecting rent from tenants on time? Or is there a better alternative?
The Importance of Timely Rent Payments
Receiving rent payments in a timely manner is vital to ensure that landlords and property management companies can pay their own bills on time. Without receipt of rent on the correct date, it’s possible for landlords to fall behind in their own payment schedules, causing a domino effect of credit problems. Once a tenant has fallen behind on his or her rent, it is also very difficult for him or her to catch up. Just one late payment can make it even harder for the tenant to make his or her payment on time the following month.
Is A Late Fee the Answer?
There is a school of thought that suggests to facilitate the process of collecting rent from tenants, there should be the threat of a late fee should the payment not be made in a timely manner. Many property management companies and landlords already use this system and believe it represents a real-term penalty that will motivate tenants to keep on schedule with their payments. However, there are some things that need to be considered when deciding whether to implement late fees.
What Needs to Be Considered
Some states do not permit the charging of late fees, and other states have limits set on the amount that can be charged. This must be investigated first before deciding whether late fees are the answer. The amount to be charged is another consideration. A charge of around $50 will probably be sufficient for a rental of around $1,000 per month. However, if the tenant is already paying a rent of around $5,000 per month, $50 is probably too little and will not be sufficient motivation. A charge closer to $250 is probably more appropriate. Late fees must be mentioned in the terms and conditions of renting the property, however, and the lease agreement should also state the amount due and the times when it will be collected.
Although some landlords have great success in implementing late fees, others find the administrative effort involved can be too onerous to be worth it. Many property management companies prefer to try other solutions first, such as making it easier for tenants to make their payments on time. BillingTree's payment processing services ensure landlords can offer residents a more convenient and accessible way to make payments. By offering 24/7 access to payment systems that accept a wide variety of payment methods, tenants can pay their rent in a way that better suits their lifestyle and this guarantees that collecting rent from tenants is a much simpler process for landlords.