Having a solid rent collection policy is all well and good, but it won’t keep you from having problems. The one thing you can guarantee when it comes to any system in your business is that when it comes down to people you can always count on there being problems. That isn’t to say that you will have a lot, but you should plan for it.
For example, do you have a plan in place for handling returned checks? The amount of payments you receive by check will ultimately determine the rate at which you have to deal with this issue – returned checks can cause major problems, so you need to have a fee associated with this to cover your losses.
I think in this situation it’s never useful to actually try to manage the situation with the tenant (though you should certainly notify them). If they were aware that the check was going to bounce then they will give you an excuse, but won’t have a solution for you – if it was an accident, then solving the problem will be easy. Either way, you can take the check to the tenant’s bank and have it certified (in this case they reserve the funds so you can get them when you deposit it in your bank).
The fees are there to cover your specific losses – charges to you for bounced checks, and the extra time it takes for you to solve the problem. There’s no need to charge up the wall for this, and don’t do multiple charges – don’t you hate it when you overdraw at a bank and you get charged three times for it (an overdraft fee, a processing fee, and a management fee)? You don’t want your tenant’s to hate you, but you also don’t want to lose money.
Sometimes you will be in a situation where you need to deal with partial rent payments. After all, if a tenant doesn’t have the full balance to pay you, then they simply don’t have the money. Instead of getting a legal scuffle, it makes much more financial sense to work out a program with the tenant in question – for example instead of having the pay in full, do one month where they pay on the first and third weeks. Make these one time situations though (and be sure the tenant understands that), have all legal documents clear on the situation. This should only be done for good tenants – if you are trying to give a bad tenant a break, doing partial rent payments can make it much more difficult to evict them, as you can’t claim they didn’t pay rent.
Lastly, you will likely at some point during the business run into a tenant who simply won’t or can’t pay rent. In this case it is prudent to follow all legal paths of action, up to and including eviction. We talked about evictions in a previous article here.
Aside from handling problems when they pop up, it is a good idea to do what you can to minimize the chances of them happening. To do so, I think it’s smart to build an incentive program for people who pay on time or early. I have mentioned this in a number of previous articles, as psychologically randomly rewarding people for doing the right thing is excellent reinforcement. Be careful on waht path you take – you need to make sure you do not violate any local/state/federal laws with the sort of system you set up (so consult an attorney). One thing you should avoid doing is providing a discount for people who pay early/on time – if you go this route, then the charge to people who aren’t early/on-time will be seen as being an excessive fee.