As a landlord, it's absolutely vital to collect your rent payments on time each month. Unfortunately, it's also an aspect that many landlords have little control over: waiting each month to see if and when their tenants decide to pay.
When tenants fail to pay their rent on time, many landlords feel the only course of action is to evict those tenants. Whilst it is an option, it should only be used as a last resort as it takes a considerable amount of time, money and effort. According to the National Landlords Association, it takes an average of four months and £900 to bring a tenancy to an end. And that's only the court and legal fees - not the loss of rental income and also any consequences of getting behind on mortgage payments. It can also be a struggle to pay your other expenses which rely on you receiving the rental payments on time.
Nevertheless, with 68,000 tenants currently more than two months behind on their rent something needs to be done. So what can you do if your tenants aren't paying promptly? We've put together our top five tips for getting your tenants to pay their rent on time.
1. Clear communication
Communication is vitally important in all aspects of being a landlord - particularly so when it comes to rent payments. Make sure you're entirely clear about when the rent is due. You should also outline any fees or other consequences for paying the rent late. This will help to avoid tenants paying late simply because they weren't sure when their rent was due. You'll also help your tenants to budget for their rent: they should know exactly how much to pay and when they need to pay it.
Tip: When creating a new tenancy agreement, have every person initial and date every page of the lease. This will provide evidence that they've read and understood everything on the lease. You should also be sure to provide everyone with a copy of the signed lease.
2. Talk to your tenant about why they're not paying on time
Is it that they don't have enough money to pay the rent or that they've simply forgotten when the rent is due? Discuss whether changing the payment date or method would help. For instance, some tenants may prefer to make smaller payments on a more frequent basis. Asking your tenants to set up a Direct Debit or standing order will reduce the chances of them forgetting to make a payment.
Tip: Try to schedule the payments for a date and frequency that suits the tenant. Once a Direct Debit or standing order is set up, your tenants no longer need to worry about remembering to pay the rent every month. What's more, you won't need to waste any more time chasing for late payments. It's a win-win situation for you both.
3. Charge a late fee
Charging tenants a fee for late payments may help to motivate them to pay their rent on time. You will need to make sure any late payment fees are clearly stated in the lease.
4. Report the status of rent payments to a credit check bureau
Credit checking bureaus now provide a service for landlords to report the status of rental payments. It's another strong incentive for tenants to pay their rent on time: they'll want to keep their credit score as clean as possible. You can also reward tenants who always pay their rent on time: they're rewarded with a better score which helps them to access credit.
Tip: If a tenant is late with their payments, let them know that you intend to report their payment as late. This may persuade them to pay their rent sooner rather than later.
5. Offer a discount for prompt payment
Consider offering your tenants a small discount for paying their rent on time. A small discount can provide motivation for your tenants to pay on time. It also benefits you by greatly reducing the amount of time you spend chasing payments.
Tip: A good way to do this would be to offer a discount for payments made by Direct Debit or standing order. With both payment methods, your rent can be taken automatically when it's due each month. What's more, with Direct Debit you'll always be told if a payment has failed. This means you'll know exactly what has happened without having to spend time every month checking your bank statement.
What if that doesn't work?
Sometimes, despite your best efforts, a tenant will still pay their rent after the deadline. If you wish to evict them, you'll need to make sure you follow a set of strict procedures for evicting a tenant. These rules will depend on the type of tenancy agreement and the terms you've agreed.
To find out more about whether Direct Debit could help you to get your tenants to pay their rent on time, read our previous post on Direct Debit for landlords and letting agents.
GoCardless is used by over 55,000 businesses around the world. Learn more about how you can improve payment processing at your business today.