As a landlord, there are dozens of problems that can arise on any given day on the job.
Many of these problems arise from the people that landlords work with, specifically tenants.
As all property managers and landlords can tell you, some tenants are troublesome and make others do extra work.
One of the most common ways that tenants make property management more difficult is by not submitting rent payments.
Since collecting rent is the main source of income for most landlords, not receiving it is not good. When this happens, they look to third-party companies to take care of the problem. These companies, called rent collection agencies, assist in collecting unpaid rent and make sure that the landlord receives full payment.
Not sure what a rent collection agency, or debt collection agency, is?
No worries. Below, we have covered everything about what a rent collection agency is, how they collect unpaid rent, and how you, as a property manager, can make sure that you don't have to deal with past due rent anymore.
So, to get started, let's go over what a rent collection agency is.
What is a Rent Collection Agency?
A rent collection agency, also known as a debt collection agency, is any company that specializes in collecting delinquent rent payments from tenants. Delinquent rent payments are rent payments that have not been submitted by the date that they are due.
These companies are typically the best choice for property managers. This way, they do not waste their own time or resources tracking down a tenant who has not paid rent. Agencies have debt collectors that are knowledgeable of all debt collection laws outlined in the Fair Debt Collection Practices Act (FDCPA).
This means that they will be much better at dealing with delinquent tenants in a completely legal way. They also employ people like skip tracers, attorneys, private investigators, and professional collection agents. These teams of people can be very aggressive with their rent collection efforts, meaning you will probably get your payments.
Some agencies offer a flat fee program that allows the property manager to instantly report the delinquent tenant. Thus, the tenant will be reported to the three major credit bureaus and will receive multiple collection letters to the rental address. These credit reporting agencies can heavily influence the tenant's future ability to receive loans or rent properties.
A delinquent rent collection agency uses various methods to convince the tenant to pay their debts on all past due accounts. However, there are other methods that landlords can use to get their debts paid.
Below, we have listed some of these methods.
Rent Collection Agency Alternatives
Personally Claim Payments
If the landlord believes that the tenant may pay the rent if they are confronted, they can personally go and attempt to get their money back. This is typically the case when the tenant's lease agreement expires and they simply leave the property with unpaid debts.
In this case, it may be rather difficult to locate the tenant. This is because tenants will not always offer a forwarding address. This means that it is up to the landlord to figure out where the tenant is currently living and send them a notice to pay their outstanding balance.
The best way to start in this process is by sending a letter to the tenant's last known address, even if it is the rental property. When this is done, it is important to mark the front of the envelope with "Address Service Requested" or "Address Correction Requested". When this is requested and purchased, the United States Postal Service will research their database for the new address and forward the letter there.
Going through this process saves the time of finding and hiring a rent collection agency. However, if this doesn't work, the landlord may have to move on to other methods.
Credit Bureau Reporting
Another thing that landlords or property managers can do is report the outstanding debts to a credit bureau. This would usually be done by the rent collections agency if one is hired. When the debt is reported to the credit bureau, it will stay on the credit reports as unpaid rent. To remove this debt from their file, a tenant must get it cured, meaning they must pay the debt.
Small Claims Court
Another way for landlords to collect money from their tenants is to file a small claims case. If all local court rules are followed, and the lease terms are adhered to, the landlord may be able to collect money for additional damages, late fees, and legal fees.
Although this method could end very favorably for the landlord, it also requires a ton of time and resources from them. For this reason, whether or not to file with the small claims court depends on the amount of money that your tenant owes.
Now that we know about the various methods to collect unpaid debts, let's go over some tips to not have to deal with tenants that do not pay rent.
How to Avoid Using a Rent Collection Agency
Although a rent collection agency is supposed to get a landlord all of his money back, it would be ideal to not have to rely on one to get paid. Below, we have included some tips to make sure your tenants pay their rent.
Conducting tenant screening is extremely important when it comes to finding tenants that pay rent. As mentioned before, unpaid rent can be reported on credit reports, which show up when a tenant is screened. This means that a landlord can find out whether the tenant has a positive or negative payment history through tenant screening.
Clear Rent Collection Policy
Having a clear rent collection policy is essential. A policy that is clear and easy to understand allows the tenant to know exactly what the lease terms are and what is expected of them. This way, the rent collection terms can never be disputed, as they were always included in the lease.
Offer Payment Alternatives
Another way to help tenants get rent paid on time is to offer multiple payment options. By offering multiple payment methods, the tenant may have access to an easier method of payment for them which will result in more on-time payments for the landlord.