How private landlords can automate rent collection.

"I struggle with collecting rent on time!" is always the answer any private landlord gives when asked about their biggest fear or number one problem. 

Indeed, annual private rental prices increased by 4.5% in England, 4.2% in Wales and 4.9% in Scotland in the 12 months to February 2023. With high energy prices and the rapidly rising cost of living, the challenge of collecting rent on time is there to stay.

As a landlord, you must receive your rent payments on time each month. Many landlords think they have little control over tenants who don't pay on time. However, that is no longer the case!

In this article, you will learn:

• How traditional methods for collecting rent increase the likelihood of late rent payments.

• That Direct Debit is now available to private landlords to automate rent collection. It is no longer reserved for big companies.

• How simply switching to Direct Debit gives private landlords control over payments and significantly improves the success rate of collecting rent on time.

How to get your tenants to pay rent on time

There's plenty of advice available for landlords online and from professional organisations on dealing with tenants not paying rent on time. Unfortunately, most of it focuses on the same old ideas that are time-consuming, generally ineffective, and often counter-productive, such as:

• using more stringent referencing

• keeping good communication with tenants

• offering repayment plans for arrears

• offering temporary rent reductions

• charging late payment fees

• reporting tenants to a credit check bureau

While some of the above may help in certain situations, most landlords fail to consider how specific payment methods increase the chance of tenants not paying rent on time.

What are the popular methods of collecting rent?

Many landlords leave it to the tenants to decide how to pay, and with cash and cheques becoming increasingly rare, the majority of renters are comfortable with some form of electronic transaction.

Collecting rent via bank transfer

Using manual bank transfers benefit tenants more than landlords. Tenants are able to control when and how much they pay, leaving the landlord reliant on them taking action every month to receive rental payments. 

Bank transfers increase the likelihood of late payments for numerous reasons; for example, a tenant may forget to send the rental payment on the specified day. Using a payment method that requires manual action from the tenant every month increases the chance of late payments.

Collecting rent via card payments

Card payments have one significant advantage over manual bank transfers - they can be automated to recur every month. Therefore, unlike bank transfers, your tenants do not need to remember to pay each month.

The biggest issue with cards is that they can be lost and expire; when this happens, the payment will fail and need to be re-set up on the replacement card. Card payments fail at a rate of 10 - 15% - therefore, if you have ten tenants, you will be dealing with 1 or 2 failed payments every month!

Furthermore, any change to the date or amount of payment requires manual action from both you and your tenant, creating more work and delay.

Lack of Payment Visibility

Another way card payments work against landlords, which is also an issue with bank transfers, is the lack of payment visibility. You have no idea whether a payment has been made until you manually check your bank account.

High Transaction Fees

To add insult to injury, you will be paying high transaction fees to experience these problems! While a bank transfer is typically free, accepting card payments is relatively expensive as it requires the involvement of fee-charging payment processors and payment gateways.

Collecting rent via standing order

Standing orders are a free-to-set up, automated, recurring payment method - sounds perfect for landlords, right? Wrong!

Standing orders do enjoy certain advantages over cards. As account-to-account payments, they do not suffer from the issue of lost or expired cards, nor the high transaction fees. However, they do have significant limitations and, as a result, are not ideal for collecting rental payments on time.

Requires Tenant Action

Firstly, standing orders must be set up by the tenant. As the landlord, you can only inform the tenant of the amount and date of payment, and then you are relying on them to set it up with their bank. Many businesses struggle to get customers to set up standing orders on time, resulting in missed payments and all the associated work in chasing them up. 

Standing orders are also inflexible, so if anything changes - rental increase, change of payment date - the tenant will need to set the standing order up all over again.

Lack of Payment Visibility

In addition, like bank transfers and card payments, standing orders also lack visibility. If a tenant cancels their standing order, you will not be informed and will get an unwanted surprise when you check your bank account and find you have not received payment.

Increased Burden of Financial Admin

The lack of notifications and visibility on these payments raises another issue - record-keeping and financial admin for tax and accounting purposes. 

Manual bank transfers, card payments, and standing orders pass on a heavy burden of financial admin to landlords; they require a lot of time-consuming manual work checking and reconciling payments. 

Furthermore, because features of these payment methods tend to facilitate late payments, there are additional credit control activities of chasing late payments to consider. According to a Tide survey, late payments are so prevalent that the average UK SME spends 30 hours a month chasing late payments!

Collecting rent with Direct Debit

Historically Direct Debit was only accessible via mainstream banks to large businesses who had to pay significant set-up fees, meet high turnover requirements, and other compliance obligations.

However, as banking has opened up to new technology, organisations like GoCardless have provided easy access to Direct Debit and its many benefits for private landlords who wish to automate rent collection.

Direct Debit is a secure, flexible, recurring, account-to-account, 'pull' payment. This means you are in control, and the rental payment will automatically be pulled from your tenant's bank account on the due date.

As far as landlords are concerned, the critical feature is that Direct Debit is a 'pull' payment method which enables the landlord to control when a payment is made, so there's no reliance on the tenant to take action every month. Sign up now!

The advantages of automating rent collection with GoCardless

1) Eliminates late payments

Direct Debit via GoCardless automates rent collection by pulling payments from the tenant’s bank account for the amount and on the due date specified by the landlord. Unlike standing orders and cards, a new mandate does not have to be created if rent goes up, the payment date changes or additional fees need to be charged. 

2) Notification of cancellation

If a tenant cancels their Direct Debit, you will get an email from GoCardless informing you of this. Knowing the moment payment has been cancelled gives you a head start in contacting the tenant to start your late payment process.

3) Save Time on Financial Admin

Using Direct Debit via GoCardless also offers significant time savings on chasing late payments and financial admin. Direct Debit eliminates late rent payments, saving you time previously spent chasing. It also enables you to automate payment collection and other tasks through the GoCardless merchant dashboard.

The dashboard further allows you to easily integrate any accounting software that you may use. By automating payment collection and reconciliation, GoCardless merchants spend 59% less time on financial admin and 90% less time chasing late payments.

4) Low Cost, High Success Rate

Direct Debit is an automated account-to-account transfer. Bank accounts cannot expire or be lost, nor does anyone need to remember to make the payment. As a result, Direct Debit solves all the issues that cause late rental payments with cards and manual bank transfers.  

Furthermore, the fees associated with Direct Debit are significantly lower than those charged by cards. Collecting that same rental payment of £1000 that would typically cost between £15 - £30 via card payment, would cost only £4 with Direct Debit via GoCardless.

Learn More about our pricing here.

Benefits of Direct Debit for Tenants

Direct Debit is a payment method that solves multiple issues for landlords and significantly increases the likelihood that tenants will pay rent on time.

Not only is Direct Debit the sensible choice for landlords, but it also has advantages for tenants!

Direct Debit is a secure and trusted payment method that offers advantages for tenants who receive protection from unauthorised payments through the Direct Debit guarantee scheme. Direct Debit also frees tenants from needing to pay the rent manually - it's a set-and-forget method that benefits everyone.

Summary

Landlords' standard rental payment collection methods - bank transfer, card payments, and standing orders - contain features that make late payments more likely. 

In addition to tenants not paying rent on time, landlords face the associated problems of high transaction fees, failed payments, and high levels of time-consuming financial admin. Direct Debit via GoCardless, by contrast:

• Eliminates late payments

• Automates rent collection

• Offers payment visibility

• Controlled by the landlord

• Low cost

• High success

• Significantly reduces financial admin

• Easy to set up