In the last month alone, an estimated 700,000 UK households missed or defaulted on a rent or mortgage payment.
This stark statistic underlines the massive impact that the cost of living crisis is having on both renters and landlords. Data gathered by Which indicates that missed payments are particularly prevalent amongst renters, with one in twenty having missed a payment in order to cover other outstanding bills.
The impact of missed payments can be significant, particularly for landlords who rely on rental income to make mortgage payments or fund repairs or renovations.
Cash flow remains one of the most important aspects of running a successful business and a loss of liquidity can seriously impact operations. Late or non-payment by tenants can cause landlords to struggle to pay their own bills or suppliers, leading to a vicious cycle of late payments.
This issue is particularly prevalent in the property industry, where landlords have to juggle the complicated overlapping financial pressures of vacant properties, rising property taxes, and late payments from tenants has led to a worrying 33% of real estate businesses struggling to pay their own suppliers.
To tackle this, landlords, estate agents, and property management companies need to ensure they have robust processes for collecting payments and managing late payers effectively.
In this article, we’ll explore how to manage late payments in the property industry, providing actionable advice on how to avoid late payments from renters and best practice tips on managing them when they arise.
How to avoid late payments in the property industry
When it comes to reducing the number of late payments your property business is dealing with and preventing a loss of liquidity, there is no 'magic bullet' single answer.
Instead, an overlapping series of preventative measures should be implemented to ensure timely payment of rent or other fees. Thankfully, most of these measures can be easily implemented with minimal disruption or additional costs.
Some simple to implement late payment prevention strategies include:
Setting expectations
The first step in preventing or mitigating the impact of late rental payments is to ensure that your tenants understand the rules from the outset. This means clearly outlining expectations in a written lease or agreement and ensuring all parties know what is expected before any legal document is signed.
Establishing and agreeing on critical aspects such as the amount due, when it is due, and how the payment will be made is vital in ensuring that tenants know exactly what is expected of them.
Once these terms are established and agreed upon, it is vital that they are not altered without the consent of both parties. Adding additional surprise fees and costs can lead to bill shock, causing your tenant to be unable to budget for their monthly expenses properly.
If you plan on using late payment penalties, the exact details should be included in the contract and agreed upon by both parties before signing. If your customer understands that they are likely to accrue more debt by not paying on time, they are far more likely to adhere to the payment schedule.
Clear communication at all points is vital to effective late payment prevention. Maintaining an open and honestly communicative relationship with your tenants will ensure that any issues are identified and addressed early on.
Providing your tenant with regular updates about their financial obligations makes them far less likely to miss a payment or fall behind in their rent. Regular communication also helps build trust between the landlord and tenant, which can go a long way towards ensuring timely payments.
Being flexible
As mentioned, one of the reasons for the rising number of late payments in the property industry is the current cost of living crisis. A rapid rise in inflation, followed by 12 consecutive increases in interest rates, has seen average tenants’ income fall significantly in real terms.
Food costs alone have spiked by a crippling 19.1% over the last year, forcing many renters into the unenviable position of having to choose between paying their rent on time or feeding their families.
For many, the cost of rent has become an insurmountable financial burden and one which they struggle to meet.
Rather than allow this situation to spiral out of control, landlords can choose to offer more flexible payment terms, allowing tenants to spread the cost of rent over a longer period and break it down into manageable chunks.
Offering the option for a payment plan to break outstanding rental payments into manageable sums can be a huge help to tenants struggling to cope with their finances while still ensuring that you receive the money that you are owed.
However, it is important to note that this approach should be used sparingly and only after thoroughly considering an individual tenant’s financial situation. If done correctly, payment plans can help prevent more severe late payment issues from arising.
Being proactive
Taking a proactive stance in managing late payments is the best way to mitigate the catastrophic impact they can have on your business. Ideally, this proactive approach should start before a contract has even been signed.
Credit checking your protective tenants is a vital part of onboarding, allowing you to identify any potential risks to timely payments. This process should include credit checks, rent history reviews, and a detailed assessment of the tenant’s financial stability.
If you are worried about the impact of a tenant’s financial situation on your business, it is worth considering taking out a rental deposit bond or insurance policy to cover any losses caused by late or non-payment.
A comprehensive credit control policy is another critical step in preventing late payments. Creating and disseminating such a policy to all staff will ensure everyone is on the same page when it comes to chasing and collecting late payments.
Ensuring that you and your staff are all pulling in the same direction when it comes to the issue of late payments is a key factor in preventing miscommunication and mistakes that could exacerbate the issue.
That being said, your credit control policy shouldn't be set in stone. Take the time to review your policy on a quarterly or yearly basis and assess how effective it has been in preventing late payments. If necessary, make changes to the policy and communicate this clearly to all staff involved in its implementation.
Monitor payment behaviour
Not all tenants defaulting on their rental payments are doing so with a valid reason, but it can sometimes be difficult to separate genuine cases of financial hardship from those who are deliberately avoiding paying their rent on time.
Regularly monitoring payment behaviour is a key part of late payment prevention. Keeping a record of all payments due and when they were or should have been received allows you to identify any issues early on and address them before the situation becomes unmanageable.
Learning to spot the red flags and distinguish between genuine and malicious cases of non-payment is a critical aspect of effective late payment management. Paying close attention to payment patterns can alert you to any potential problems before they become serious issues, allowing you to address them quickly and efficiently.
Best practice to chase late payments
Having covered some simple and easy-to-implement steps you can take to avoid late payments, let's move on to another critical aspect of managing late payments- actually collecting the money.
Chasing late payments can be tricky, but following best practice guidelines can ensure that you do so in an appropriate and non-confrontational manner.
Firstly, it is important to note that the legal time frame for chasing overdue payments differs from country to country, so make sure you familiarise yourself with the relevant regulations before getting in touch with your tenant. This is particularly true if you choose to implement late payment charges or interest, as these are generally governed by specific guidelines.
Once you are fully familiar with all the relevant legal requirements, there are some simple best-practice steps that you can take when it comes to chasing late payments, including:
Remaining professional at all times
Late payment is an emotive subject, and it is easy for tempers to flare when dealing with difficult conversations. However, it is vital that you remain professional and civil at all times, as going down the confrontational route could worsen the situation rather than resolve it.
It's important not to make assumptions and treat every case of late payment as an individual situation. Adopting a professional yet empathetic approach is key to successful debt collection.
If a tenant finds themselves in financial trouble, offering an open and professional dialogue can be a great way to help them find a solution.
Multiple options, including deferred payment plans and rent reduction agreements, can help both parties come to an amicable outcome. Remaining flexible and accommodating of individual circumstances can greatly help resolve the issue before it gets out of hand.
Being proactive in chasing late payments
Instead of letting the situation escalate, it is important to be proactive in chasing late payments and resolve any issues as soon as they arise.
We've covered the subject of when exactly and how often you should chase late payments in detail, but the key takeaway is that being swift and decisive is the best way to prevent late payments from becoming a serious issue.
It is also important to ensure that you have clear and consistent processes for dealing with late payments, as this can help keep the situation under control and reduce potential damage.
Take advantage of the latest software
One of the most consistently impactful side effects of late payments is the cost of chasing those payments and the added resources needed to prevent them in the first place.
Moving skilled staff away from other tasks to monitor payments manually can be expensive, so taking advantage of the latest software solutions can help reduce the burden on your staff and streamline the process.
Chaser's comprehensive platform uses cutting-edge automation to help you monitor late payments in real-time, allowing you to take swift and decisive action at the first sign of a problem.
Featuring automated late payment reminders, a credit checking facility, an inbuilt payment plan option, and a wealth of gathered data and reporting tools that you can use to gain important insights into your tenant's payment behaviour, Chaser can help you to keep on top of any late payments quickly and efficiently.
At the same time, its user-friendly dashboard allows non-technical staff to manage payments without having to invest in specific training or additional resources.
By taking advantage of the benefits of Chaser, you can free up your team to focus on other areas of the business while ensuring your late payments are being managed efficiently and professionally.
To find out more about how Chaser can help your property business avoid late payments and get paid, on average, 16 days faster, book a demo today or sign up for our no-obligation 14-day free trial!
