5 Tips to Collecting Rent on Time


5 Tips to Collecting Rent on Time

Collecting rent on time

Collecting rent, in full and on time, is the number one thing a landlord needs to do to be successful and have consistent cash flow. 

But, especially in Class C or D rental markets (where lots of new investors start out because the houses are affordable), this isn’t always easy. You’ll almost certainly have to deal with late or missed payments at some point in your landlording career, but you can minimize payment issues if you have the right rent collection process in place.

We’ve managed hundreds of rentals in Metro Detroit for over 20 years, so we’ve learned a thing or two about collecting rent on time (and in full) each month. And now, we’re sharing them with you. 

So here are our top 5 tips that are proven to work for generating consistent rent payments – no matter what market you’re in.

1. Set & Maintain Expectations

With any healthy relationship, you need to set your expectations with tenants from the get-go. To do this, you need to be transparent when you first meet your tenant.

At the application stage, you and your potential client get to size up each other. Be firm with all the clauses included in your rental agreement, and let the tenant know of the possible consequences if they fail to follow through. If your tenant misses a payment, you should have a clear resolution process ready:

Payment Plans: If a tenant misses a payment and you want to allow them to start a payment plan, have clear terms in writing, as well as clear explanations of what will happen if they renege on the agreement. Then be firm – follow through with eviction if needed. If you show you’re soft on collecting rent, they’ll take that as a green light to continue to pay late, with no consequences.

Eviction Process: Typically, landlords can evict a tenant if the latter hasn’t paid their rent within five days past due. Don’t be afraid to serve an eviction notice as soon as you’re able to, because (trust us), once a tenant sees that notice, they’re much more likely to suddenly produce their rent payment.

The bottom line is that the tenants should understand what you expect from them, and know that you’ll follow through on your promises. Tenants need to understand the rent amount, due dates, late fees, and all possible consequences of not sticking to the terms of the lease or an agreed payment plan.

Don’t be afraid of being strict—the last thing you want is for the tenants to run you over! 

2. Establish a Carrot-and-Stick System

Tenants are human beings—they will react to both positive encouragement and negative reinforcement. Given this, we highly suggest that you establish a “carrot-and-stick” system that rewards on-time payments and gives consequences for late payments.

Here are two suggestions:

Implement Late Fees: In general, the maximum legal amount for late fees is 5% of the monthly rent. In implementing your penalty, the rule of thumb is to have the amount be high enough to motivate on-time payments, but it shouldn’t be an additional financial burden that prevents tenants from paying rent the following month.

Incentivize with Discounts: You can also reward your tenants with annual, semi-annual, or quarterly discounts whenever your tenant pays rent on time. For example, you can reward them with a 5% discount on rent if they submit payments on time for an entire quarter. For Class C or D rentals, these discounts can be a huge motivation for tenants to pay rent punctually.

Outline all potential consequences and rewards in your lease agreements, so your tenants are encouraged to pay on time from the very beginning.

3. Offer Multiple Rent Payment Options—Except In-Person Collection

Give your tenants several options to pay their rent, and you make it easier for them to pay on time. Some of the payment methods you should include are:

    • Online payment software
    • Direct bank deposit
    • Paypal (or credit card)Check to mail
    • Flexible rent payments (using software like Flex)

Basically, you should offer any payment method except for in-person collection.

One of the biggest problems with collecting rent in person is it’s time-consuming. Let’s say you have more than ten rental properties in different parts of Metro Detroit. You wouldn’t want to spend hours driving around, only to find your tenant isn’t actually there even after calling to check. It’s just not practical, or scalable.

You want to avoid these headaches if possible, so we recommend digitizing payments as much as possible. It also makes your financial record keeping a lot easier.

By using an online rent payment system, you can do the following:

      • Set reminders and alerts to notify your tenants of rent due dates automatically.
      • Automate rent payments so tenants don’t have to think about it every month.
      • Monitor payment schedules and receive notifications when the money arrives on your end.
      • Document all transactions digitally so it’s easy for you to backtrack all receipts and payment records when needed.
      • Offer credit boost incentives to tenants if you use one of the three platforms listed above.

An online rent payment system will give you complete visibility of tenant payments, make it easy for you to hold them accountable for issues on their end, and increase the chances of them paying the rent on time.

Here are some services that you can consider:

      • Apartments.com: A free rent collection service
      • PayYourRent: Does same-day rent payment processing
      • TenantCloud: Can work with payments via Dwolla or Stripe
      • Property Management Software Options: Buildium, Appfolio, Propertyware, etc.

4. Have Defined Payment Plans if Past Due

Should your tenants incur back rent, you can offer defined payment plans to help them pay it off. Payment plans usually won’t come with an interest rate, but it’s ultimately up to how you’ll negotiate with your tenant.

You don’t have to create a payment plan on your own. There are online templates and payment plan generators available for you to use. At the very least, it must include the following details:

    • Your and your tenant’s name
    • The total outstanding balance
    • Specific schedules and corresponding amounts to be paid
    • Any discounted balances
    • Repayment schedule (e.g., monthly, bi-weekly, weekly)
    • Payment instructions and additional conditions
    • Signatures to confirm the agreementYou want the payment plan to be as defined and detailed as possible to ensure that the tenants will pay back their outstanding debt. Don’t give them the opportunity to pile up their debt by continuing to pay late. If they do, skip straight to point #5:

      5. Be Ready with Your Eviction Process

      Lastly, if you see that your efforts to help tenants pay rent are in vain, “politely” start the eviction process ASAP to motivate your tenants to cooperate and follow through. Otherwise, you might wait another 2-3 weeks while your tenant jerks you around, and by the time you do start eviction proceedings, they’ve already gotten another free month of rent off you.

      Keep in mind that there are specific rules for each state and local laws on when you’re entitled to evict your tenants. So if you’re not familiar with the process, working with an eviction lawyer or property management company is the better choice.

      Before filing for eviction, have the following things ready to show your local court and authorities:

      The notice to pay or quit that you’ve sent to the tenant

      Other written statements where you informed your tenant of their outstanding rent payments

      If you opt to go on this route, be sure to show up for all the hearings and proceedings. However, as we mentioned earlier, sometimes you don’t need to get a judgment to get paid. A lot of tenants will pay up once they get handed a notice to quit.


      Collecting rent is one of the highest contributing factors to rental investment success, as it’s directly related to your income as a landlord.

      These tips have worked for us as property management specialists with over 20 years of experience. With these steps, you can make collecting rent easier for you and your tenants to track and comply with rent payments every month.

      If you need help with property management in Metro Detroit, get in touch, and let’s find the best course of action for you.

      Image courtesy of Olya Kobruseva

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