lmost every community at one time or another has some delinquent rent, but in some areas, it is clearly out of hand. Where is yours? If it is over 3%, and there is no economic depression in your area - such as a factory closing or large employer going out of business - you may have serious problems.
Uncollected rents represent dollars that could be used for bonus programs, wage increases, or community improvements. A manager that does not have an aggressive attitude toward rent collection is not focusing on one of the primary areas of their responsibility.
Late rents are not always the result of "deadbeat" residents. Sometimes late rents are the result of unprofessional management. Let's look at a little of the psychology behind the scenes -- on both sides of the desk -- and see why delinquencies can get out of hand.
On the side of the resident - put on a different hat than you normally wear, and look at the community operation with a different perspective. If a resident, as a customer, feels they are not receiving the services they should be receiving as a part of their rent (if sewers are backed up for an exended period of time or roads or torn up or not patched) their attitude can be such that they deliberately pay late. If there isn't the type of positive communication between a manager and the residents that there should be, attitudes can become skewed with respect to the community, and payment may be withheld. Please note I am not justifying - only suggesting possibilities for the purposes of discussion.
Another, more common excuse for not paying rent on time is mis-management of funds. When an emergency arises, residents may not have cash set aside to handle it, therefore payment must come out of the regular budget. Oftentimes, that means the rent will suffer. Or maybe their regular bills are due in such a way that they cannot pay everything on the due date, and the rent is the one thing they elect to pay late.
Why would a resident have this attitude? In all of the above potential scenarios, the reason is because they have a personal relationship with the manager. When the resident sees a creditor as a real person they know; a friend they can call by name; it becomes easier for them to not pay on time. Most of the time, a resident is not on a first-name basis with the banker who financed their car or the lender who holds the lien on their home. They are, however, with the community manager. So, when money gets tight, they will usually opt to not pay the one person they feel they can talk to , the one person they feel they have a personal relationship with that will allow them to slide.
That's the key -- the residents not only have a personal relationship with the manager, but they feel that it will be "OK" not to pay rent on time. Do they know there are late fees? Yes, but that's okay too, because at least it isn't someone threatening to reposses a possession. And, it doesn't even usually hurt their credt, because most landlords don't report to the credit bureau every month, so a late payment only winds up costing the resident a late fee.
That starts a trend -- for both resident and manager. The resident knows they can now pay late and get by with it. They may have to pay a late fee, but there is no real reason not to pay "when they can". The manager knows there is an issue and mentally conditions themselves not to expect rent on time from that resident. In some cases, I've even seen managers not send out the Notice for Non-Payment until the time that the resident normally pays (10th to 15th) has come and gone.
This is serious stuff! Rent is due on the due date specified in the lease - normally the first of the month. For a manager to not aggressively try to collect rent until later in the month is totally unprofessional and unacceptable. In some states, continued collection of late rent with the Notice for Non-Payment going out later in the month may pose a legal hardship on the owner. It may result in an "implied change of due date" by law. The resident may now owe their rent as of the date they normally pay. The landlord may have to refund late fees paid.
A professional manager is aggressive in collections. If the rent is due on the first with a grace period that lasts until the 5th, then everyone should be paying rent on the first. On the third or fourth, a notice could go out to all residents who haven't paid for the month advising them that they could save money (the amount of the late fee) by paying rent within the next 24 hours. On the 6th (or the day after the ending of the grace period) the legal Notice of Non-Payment should be sent to all residents who have not paid. Even the ones who have called and made some sort of payment arrangement should get a letter. Remember, in some areas, if you don't legally notify the resident that they are in violation of the terms of their lease you may change those terms by your implied actions.
Within 48 hours after those Notices of Non-Payment are sent, phone calls should begin. A manager should be finding out when the rent will be paid and why it is late. When someone owes you money, you have a right to ask why payment is not made on time. You also have an obligation to your employer to suggest alternatives to your residents. For instance, you may suggest that they pay rent on time, and pay their phone bill or electric a little late. Those entities normally don't charge a late fee.
If a finance company has a repossession in your community, they usually need to receive an invoice for rent every month. So, if the rent is due on the first, don't wait until then to send out a bill. Mail it on the 15th or 20th of the previous month so their check has a chance to be cut and mailed to you for timely payment. Within two or three days after the invoice is mailed, call to make sure it has been received. Verify that you sent it to the right person and to the right address. Offer to fax a copy if they have not received it.
Following up early rather than late is one key to getting money in the bank on time. Another key is simply believing that the rent is due on the first, and realizing that an important part of your job is to collect it on time. Recently, I was "minding the store" in one of our communities when a resident came in late, and had only a partial payment of their total bill. Rather than taking the money order, I let it lay on the desk where she put it. My comment to her was, "I'm sorry, that's not full payment. Your money order is only $300, and you owe $313.06."
She told me that she could not get a money order for an uneven amount. My answer was that I would take the remaining amount in cash. Then, she told me that she had three children and only had $40 to buy groceries for two weeks, and didn't have the rest of the money. My reply was that her lease required payment in full and, since it was already after the due date and late fees had been added, she needed to take the money order back until payment in full could be made. She was incredulous that anyone would ask her to take money back. She asked if I knew it was the Christmas season, and if I wanted her children to go without food on Christmas. My reply was that Christmas comes every year at the same time and she should plan for Christmas dinner and rent as part of her budget.
Persistence and insistence paid off for us. She went to the truck and returned with $13 in cash. When I still refused to take it because it wasn't payment in full, she fumed, but made another trip to the truck and returned with the six cents. Discussion with the manager later revealed that the manager would have simply taken the money order - because it was Christmas - and allowed the resident to carry the balance until next month. Also, since the manager knew that the resident was going to turn their house back in during January as a voluntary repossession, the thought was that we would be lucky to get anything at all from them.
Obviously, that thought was wrong. All it took was a different attitude. My attitude was that the resident owed the money, and there was no reason for it not to be paid. What's your attitude?
