5 Key Steps to Managing Rent Arrears
Efficient and timely collection of rents is key to any property manager, whether you’re a landlord managing your own property portfolio, or a letting agent managing properties on behalf of others. After all, a rental property’s purpose is to generate rental income, and if you fail to collect the rent then the property fails to fulfil its yield potential for you or your landlord’s portfolio. But with a little bit of planning you can ensure that rents are collected on time, every time.
Today, I’m sharing my five key tips to ensure that rents are collected on time and rent arrears are minimised.
Who within you business is responsible for ensuring rents are paid on time? If you’re a landlord then the answer to this question is easy – you! If you don’t track rent balances, then no-one else will. At best your business will be losing money; at worst you won’t have a business to manage. If you’re a letting agent then ensure that your team knows whose responsibility it is to identify missing rent payments. This task may fall to one member, perhaps within the accounts team, or a number of people, e.g. the designated manager for each property.
2) Preventative Measures
Effort expended ensuring rents are collected promptly will be much less stressful than chasing up missing payments. Ensure that a guarantor has been included in the tenancy agreement. Tenants will make the extra effort to pay promptly if they know a third party will be involved in the rent arrears process. Where possible collect rents by standing order or direct debit. This makes rent collection much easier for all concerned.
How can you easily identify missed rent payments? Easy! Use a software application such as RentPro. That’s a shameless piece of self promotion I know. Obviously there are alternatives available, but whatever option you choose, make sure that rent arrears management is adequately dealt with. Rent arrears should be easy to spot, shouldn’t they? Yes…. but maybe no… If a tenant is in receipt of housing benefit and also providing a top-up, then there are effectively two balances to track – rents due from the local authority and rents due from the tenant. The headache increases due to the fact that benefit payments are always received in arrears. The software solution you decide upon should track both balances and also allow the setting of thresholds so that rent payments aren’t flagged as late / missing simply due to local authority payment practices.
Mistakes happen and a missed rent payment may be a simple oversight. A gentle reminder may be sufficient to resolve the situation. This could take the form of a text message – simple, quick and cheap. Your software solution should have this capability along with a default message for this purpose. You may prefer to phone the tenant. If so, remember to keep a log of the conversation along with all other correspondence. As with many life incidents, frequent and effective communication can prevent small matters escalating into something more serious.
Let’s be realistic. If you’re a property manager then you’re going to have to deal with rent arrears that aren’t resolved quickly. It’s therefore advisable to have a well defined process in place, so that relevant team members know how to manage the situation. The steps associated with the process should each be performed after a designated time period. For instance the day after rent is due you may send a text message or call the tenant. Seven days after the rent due date you may then send a rent arrears letter. Second and third rent arrears letters may be the next steps in the process, followed by correspondence with the guarantor. The process may culminate in legal proceedings including eviction and attempts to recover funds from the tenant and / or guarantor.