Standing order.
Standing orders are one of the most common ways that UK tenants pay rent today. To set up a standing order, the tenant contacts their bank or sets up online a predetermined payment amount, recipient, and ongoing date of payment. While this can ensure tenants pay on time, some tenants, may not want money automatically deducted from their account, and this method still suffers the possibility of the tenant not having the available funds to cover the payment. Further, standing orders depend on the tenant to set up the payment, and there is no simple method of increasing rent charges: the tenants must manually adjust the amount themselves.
Direct debit.
While a standing order is set up on the tenant’s side, a direct debit is initiated by the landlord as a mandate. The landlord sets up the amount and the timing of the payments and this is taken from the tenant’s bank account at set intervals. This system provides several benefits to both landlord and tenant: it prevents late payments; it enables the landlord to adjust or increase the rent at lease renewal without the tenant having to intervene; and it provides transparency into the payment process and monitoring of cash flow, with the landlord easily able to see when payments have or have not been made. For the tenant, it offers convenience and security via the Direct Debit Guarantee.
Of course, some tenants will be reluctant to start the process as they may not trust that landlords will take the correct amounts at the right times, or they are concerned with the amount of funds in their bank accounts. They may not agree to sign the mandate that allows the landlord to deduct funds.
Cheques or cash.
These methods used to be the standard but have all but died out in the United Kingdom. They suffer from drawbacks such as having to physically collect the rent payments or having cheques become “lost” in the mail, though some landlords like having the opportunity to visit with their tenants every month and make a casual inspection of the property.
Tenants who prefer to pay by cash might lack a bank account. While there are various reasons this might be the case, landlords should have a proper understanding of why. Ultimately, some tenants simply prefer to pay via these outdated methods. As long as they continue to pay promptly, this might not be a problem, but be sure to keep payments properly documented.
Ad hoc bank transfers also fall into this category and have some of the same issues of taking a cheque or cash. As tenants need to reliably initiate a payment, it can lead to frequent issues surrounding late payments.
Online portals and mobile apps.
There are an increasing number of services designed to make rent payment easy and convenient for both tenants and landlords. Some landlords, particularly larger corporations, set up their own online portals whereby tenants can pay via a debit card. Or they might use one of an array of rent collection or other payment apps, which tends to be more common in the United States. The downsides are the initial investment in infrastructure that a dedicated online portal requires and the fees taken from every transaction by many of these third-party apps.
Rent collection services. Much as letting agencies can offload some of the administrative burden of being a landlord, dedicated rent collection agencies can likewise make certain tenancies run more smoothly. The benefits are these agencies will take on the task of chasing down late or missed payments, all but ensuring that rent is paid on time. However, these companies often charge a hefty fee.
Should you use rent insurance?
If a tenant defaults on their rent payments, this can greatly negatively impact a landlord’s livelihood, particularly smaller landlords with fewer properties. To help mitigate this risk, many landlords opt to purchase loss of rent insurance, where the insurer will help cover lost income from missing payments. Additionally, rent insurance can provide support when rent is impossible to collect; say, for example, in case of a fire or remodelling where the property was unable to be rented for some amount of time.
There are many different types of landlord policies and it requires some investigation and research to understand the various types of coverage and what your business requires. Our partner XXXXX can help you understand your needs as a landlord and find the policy that’s right for you.
Whereas cheque or cash used to be the only options, there are far better ways to collect rent today. Understanding the pros and cons of each of the different ultimately will help you choose the one that works best for you and your tenants.
