Doling Out Late Fees
By David Fleming
Welcome to From Behind the Counter. This bi-monthly column is dedicated to self-storage managers and the issues they face. I hope to create an open forum in which managers can voice opinion, discuss topics relating specifically to their responsibilities and form a general consensus. From meeting quotas to handling problems with employees and employers, it will be nice for all of us to know how our fellow managers are dealing with issues unique to our industry.
I welcome your comments, suggestions and questions. Feel free to contact me regarding any subject pertaining to managers and the situations we face. Or you can simply share an interesting story (as I know we all have at least one). I would like to take this opportunity to thank Teri Lanza and the good folks at Inside Self-Storage for providing us this vehicle of education and information.
Late fees and delinquent tenants are every manager's worst nightmare, from the individual who always pays late and wants to argue the fee with an excuse to the customer who consistently pays late and just never includes the fee. Many managers, including myself, have a hard time not only trying to enforce late fees, but trying to explain them.
A lot of customers (and some owners I know) feel late fees are a tool to punish those who do not pay their rent on time or, in some cases, an additional source of revenue. But I don't think late fees really deter those who are going to pay late anyway. One of the most common questions I am asked is, "When is the rent late?" This is often followed by "How much is the late fee?" It seems to me these people have already determined they are going to pay 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 $1,000 a facility could generate every month in late fees may pale in comparison to revenue 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). Now compare that with the additional rentals and sales the manager could make if he weren't spending time and efforts on collections. I don't think there are many owners out there who wouldn't forego this revenue in lieu of lower delinquency rates and higher occupancy rates from more time spent selling than collecting.
As far as the term "late fee" is concerned, let's start calling it an "administration fee." After all, that is what it is. I have found it easier to collect an administration fee than a late fee, as it is not there to punish anyone. The customer does not feel like he is being confronted about delinquency and, therefore, does not need to feel defensive. Administration fees are also easier to explain (for that one customer who seems to want to debate everything): They cover costs incurred when it becomes necessary to deal with a delinquent tenant. These are hard costs; they do not even take into account the lost revenue in sales and customer service. Who can argue with that? As an additional 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/April 2000 edition of Carlos Kaslow's Self-Storage Legal Review.)
Did I mention earlier that delinquency collections are a manager's worst nightmare? Without getting into all of the specifics (that's a whole other article), one of the quickest, most effective ways to reduce the need for collections efforts each month are automatic-payment programs. I have even heard of cases where managers require every tenant to furnish a credit or debit card at the time of lease signing. This is an excellent way to qualify potential customers. Even if they only furnish the card for "qualifying" purposes or as second form of ID, it's a perfect opportunity to suggest they use it to pay their bill.
I realize not everyone is willing to charge a rental fee each month for a variety of reasons, such as interest rates. There is, however, a third option that we'll call a "no-late-fee guarantee." Simply put, when a new tenant is reluctant to automatically charge his rental fee each month, there is a solution that should satisfy both parties. The customer simply signs a form stating that if the rent is not paid within a specified time period, he agrees to have his card charged for the amount of that month's rent to avoid incurring additional "administration fees." This leaves the customer with the option to pay by other means at the time the rent is due, yet ensures us as the facility 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 to have to call next month.
David Fleming is a manager and manager trainer for Premier Self-Storage Inc. of Buffalo, N.Y., which plans to build 20 state-of-the-art facilities over the next five years. After having managed facilities in three states over the past 10 years, Mr. Fleming now resides in a Buffalo suburb with his two children and his co-manager and wife, Tina, who will also contribute to this column. David has won awards from industry publications, including the Inside Self-Storage award for Manager of the Year. Anyone wishing to contact the Flemings can do so at 716.688.8000; fax 716.688.6459; e-mail firstname.lastname@example.org