Why Accepting a Check for Rent is a Bad Idea

About two years ago we added to our lease a clause that rent is to be paid electronically or the tenant may be charged a handling fee. The handling fee is ten dollars. At first we were not sure how tenants would respond. To our surprise, it has never been an issue with a new tenant! Most of our new tenants today actually expect to be able to pay their rent on-line.

Unfortunately, when we take over a portfolio of properties with a lease that does not specify a payment form, we must accept checks. As my kids like to say “that is so 1980s”! With the advances in electronic payment systems accepting payment with a paper check (which is a promise to pay) is no longer a good business practice. To add to our time in processing these paper checks, we also take on a new risk.

Have you ever discussed with your bank how long they have to decide to return (bounce) a check? Did you know it might be 3-4 weeks before you find out the rent check you accepted (or any check for that matter) is no good and funds are removed from your account. By that time you have likely used those funds. As a property manager you likely have sent them to the property owner. What a mess when you have to direct the property owner to return the funds to you because the rent check bounced! With the advent of electronic payment systems, I am pretty sure the banks now are even more cautious before making a paper check good funds.

At the time a rent check bounces you also have a tenant several weeks delinquent with late charges tacked on. In our lease the tenant will owes us rent, returned check charges, and late fees. If they already bounced the rent check the chances are high they do not have funds to cover all of these charges. The likelihood that you are about to begin an eviction is rather high at this moment.

Accepting paper checks is also a matter of time. Accepting checks for rent buys your tenant weeks of delay. If you only accept electronic payments, and the payment is not made by the 5th of the month, you can begin to address the delinquency immediately. No lost time where the check might be good…or might not. Addressing late pays promptly does not necessarily avoid an eviction, but it does seem to increase our collections from the problem tenant.

Of course, you can also accept money orders. If you do not have access to electronic payments, then demand money orders or even cashiers checks. Just not personal checks. Finally, please don’t even consider cash. The security concerns are just not worth the risk in an industry where we do not routinely handle cash.

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WILMOTH Group is headquartered in Indianapolis, Indiana. We focus on providing creative local solutions for a variety of residential real estate needs including, properties for sale, property management services in Central Indiana.