Late Fees

Doling Out Late Fees

By David Fleming

Welcometo From Behind the Counter. This bi-monthly column is dedicated toself-storage managers and the issues they face. I hope to create an open forumin which managers can voice opinion, discuss topics relating specifically totheir responsibilities and form a general consensus. From meeting quotas tohandling problems with employees and employers, it will be nice for all of us toknow how our fellow managers are dealing with issues unique to our industry.

I welcome your comments, suggestions and questions. Feel free to contact meregarding any subject pertaining to managers and the situations we face. Or youcan simply share an interesting story (as I know we all have at least one). Iwould like to take this opportunity to thank Teri Lanza and the good folks at InsideSelf-Storage for providing us this vehicle of education and information.

Late Fees

Late fees and delinquent tenants are every manager's worst nightmare, fromthe individual who always pays late and wants to argue the fee with an excuse tothe customer who consistently pays late and just never includes the fee. Manymanagers, including myself, have a hard time not only trying to enforce latefees, but trying to explain them.

A lot of customers (and some owners I know) feel late fees are a tool topunish those who do not pay their rent on time or, in some cases, an additionalsource of revenue. But I don't think late fees really deter those who are goingto pay late anyway. One of the most common questions I am asked is, "Whenis the rent late?" This is often followed by "How much is the latefee?" It seems to me these people have already determined they are going topay the rent late--and they just want to know what the "punishment"will be.

As far as late fees being an additional source of revenue, the $500 or $1,000a facility could generate every month in late fees may pale in comparison torevenue generated from additional sales and interest on money collected on time.Consider the cost incurred by collecting late fees (i.e., a manager's time,phone bill, and cost of paper, envelopes and stamps for late letters). Nowcompare that with the additional rentals and sales the manager could make if heweren't spending time and efforts on collections. I don't think there are manyowners out there who wouldn't forego this revenue in lieu of lower delinquencyrates and higher occupancy rates from more time spent selling than collecting.

As far as the term "late fee" is concerned, let's start calling itan "administration fee." After all, that is what it is. I have foundit easier to collect an administration fee than a late fee, as it is not thereto punish anyone. The customer does not feel like he is being confronted aboutdelinquency and, therefore, does not need to feel defensive. Administration feesare also easier to explain (for that one customer who seems to want to debateeverything): They cover costs incurred when it becomes necessary to deal with adelinquent tenant. These are hard costs; they do not even take into account thelost revenue in sales and customer service. Who can argue with that? As anadditional advantage, from a legal standpoint, if you don't charge late fees,outside entities cannot try to step in and regulate them. (See the March/April2000 edition of Carlos Kaslow's Self-Storage Legal Review.)

Did I mention earlier that delinquency collections are a manager's worstnightmare? Without getting into all of the specifics (that's a whole otherarticle), one of the quickest, most effective ways to reduce the need forcollections efforts each month are automatic-payment programs. I have even heardof cases where managers require every tenant to furnish a credit or debit cardat the time of lease signing. This is an excellent way to qualify potentialcustomers. Even if they only furnish the card for "qualifying"purposes or as second form of ID, it's a perfect opportunity to suggest they useit to pay their bill.

I realize not everyone is willing to charge a rental fee each month for avariety of reasons, such as interest rates. There is, however, a third optionthat we'll call a "no-late-fee guarantee." Simply put, when a newtenant is reluctant to automatically charge his rental fee each month, there isa solution that should satisfy both parties. The customer simply signs a formstating that if the rent is not paid within a specified time period, he agreesto have his card charged for the amount of that month's rent to avoid incurringadditional "administration fees." This leaves the customer with theoption to pay by other means at the time the rent is due, yet ensures us as thefacility operator that we will receive our rental payments in a timely fashion.Anyone who cannot agree to that is likely to be the first one you are going tohave to call next month.

David Fleming is a manager and manager trainer for Premier Self-StorageInc. of Buffalo, N.Y., which plans to build 20 state-of-the-art facilities overthe next five years. After having managed facilities in three states over thepast 10 years, Mr. Fleming now resides in a Buffalo suburb with his two childrenand his co-manager and wife, Tina, who will also contribute to this column.David has won awards from industry publications, including the InsideSelf-Storage award for Manager of the Year. Anyone wishing to contact theFlemings can do so at 716.688.8000; fax 716.688.6459; e-mail [email protected]