6 Rental Payment Types (and Which Is Best)
Businesses of all industries have trended toward digital management in the last decade.
This includes rental property management. One of the biggest changes for landlords going paperless with digital management is online rent collection. Today, there is a range of online payment options for landlords to evaluate.
Many of these can be used on your property management software account. Others require accounts on other platforms or require extensive research.
Rent collection is central to keeping your business running, so you want to get this right. Which method is best?
Here are six rental payment types and their pros and cons for your rental business.
Cash is simple and traditional. Many tenants, especially older ones, are accustomed to paying by cash as a universally accepted currency. However, as many rental businesses consider going paperless, cash is becoming less commonly accepted.
Cash payments are available to you immediately, unless mailed. You don’t have to worry about payments bouncing or wondering when your funds will arrive.
Cash payments leave no record of when the payment was made or how much it was. A tenant could easily deny a claim that you never received their payment. Likewise, there is no reliable way to enforce late fees on cash payments.
Cash is also vulnerable to theft or misplacement. And it’s inconvenient. Both you and your tenants must make trips to the bank, and if not mailed, you must meet to make the transaction and create a receipt.
Checks are a tried-and-true payment method. They are trusted by almost everyone and simple enough to process. However, they introduce many of the same risks as cash payments.
Checks leave a tangible record of what the payment was, when it was made, and when it was cashed or deposited.
Checks aren’t any less inconvenient than cash. They still must be mailed or given at a designated meeting time, and you’ll still have to create official receipts. Unless your bank offers mobile deposit, you still have to make a trip to the bank. And if you happen to misplace a check, there’s not much you can do.
Digital payments are faster, more convenient, and safer than paper ones. Most property management system platforms offer multiple options for digital payments. Debit cards are one way tenants can pay rent.
Anyone with a bank account can get a debit card, even student renters with little credit history. Debit card payments are relatively quick, meaning you’ll receive the funds within a few days. The transaction comes directly from the tenant’s checking account, and records/receipts are autogenerated on your property management software platform. Tenants can also set up AutoPay.
One danger of debit card payments is that they might bounce if the tenant doesn’t have enough funds. They also usually require tenants to pay a transaction fee and are less secure than credit cards.
Credit cards are like debit cards but offer additional security for tenants. However, they may come with some additional inconvenience for you.
Credit cards introduce extra security through a third party: the credit card company. Credit cards are also supported by property management software platforms and offer the same benefits as debit cards.
Credit cards still require you to pay a transaction fee. You can choose to either pass this fee along to your tenants or cover it yourself and accept a lower profit margin.
Peer-to-Peer (P2P) payments are direct transfers between bank accounts through a third-party application. Venmo, PayPal, and Zelle are all P2P platforms.
P2P platforms are simple, trendy, and convenient. Most platforms have a mobile app your tenants can use to make convenient payments.
P2P platforms give you little to no control over transactions. You can’t use them to enforce late fees, block partial payments, automate payments, or autogenerate official receipts. You also can’t send reminders or updates on the platform.
If this isn’t reason enough to avoid P2P platforms, they are also known to be vulnerable to hackers and scams. Plus, tenants often pay fees when using a card. While convenient, P2P platforms are not recommended for rent collection.
Automated Clearing House (ACH) Transfers
ACH Transfers, or eChecks, are direct transfers made through the Automated Clearing House. An ACH Operator facilitates the transaction between the two banks and makes sure there are enough funds available.
ACH transfers are the quickest, safest, and cheapest method of online rent collection. You may use them already for direct deposits and bills. There are no fees for tenants, and funds are available within 1-2 days. eChecks also fully integrate with your property management software for records, AutoPay, receipts, and late fees.
You might encounter transaction limits for ACH transfers.
Streamlining Rent Collection
Based on what you’ve learned, it should be clear that digital payments offer many more benefits than paper ones. While each method has its strengths, offering tenants a variety of options will make the digital transition easier on everyone.