Automatic Rent Collection

Douglas Carner Comments
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Modern management software can collect your rental revenue automatically, without any action by your employees. The benefits are profound: reduced overhead, accurate auditing, reduced customer costs, increased occupancies and increased rental rates. Once you learn a few basics, your transaction fees will never be more than 25 cents per rent collection. Your bank deposits will occur automatically and long before your tenant's grace period has expired.

Corporate giants such as America Online, Microsoft and General Motors have already embraced the benefits of this economic technology. For example, Internet providers, utility companies, cable-television companies and banks automatically debit their customers' account every month. Yet most self-storage facilities still collect rents the old-fashioned way: through paper checks. This is the most expensive method of rent collection. Consider these costs:

  • Mailing expense: Tenants may need a reminder of when it is time to pay their rent. Each mailed invoice involves printing, labor, envelope and postage costs. These expenses can be reduced by e-mailing tenant invoices. However, not all of your tenants will have e-mail capability, so this may not be an option.
  • Lost use of funds: Tenants often wait until their grace period is about to expire before mailing their rent check. This delay in receipt of rental funds is a temporary loss of use of that money. This monetary delay, called "float," is small per check, but becomes significant for your facility's gross income.
  • Customer dissatisfaction: Tenants that mail their payment as their grace period is about to expire risk your receipt of this payment after a late charge has been assessed. A disagreement over this charge is likely to follow. No matter who wins, you just lost some customer satisfaction.
  • Labor expense: Your employees must identify the correct account and then post each check payment into your management software. If checks are lost or stolen, additional time must be spent asking tenants for replacement payments.
  • Collection costs: Mailed payments make it easy for a customer to fall far into arrears. The impending collection expense, lost income and aggravation make this a losing scenario for everyone.

Missed Occupancy

As imposing as the above expenses are, they exclude the grandaddy of them all: missed occupancy. Have you ever paid an insurance bill and found yourself wondering about your alternatives? Maybe you could find a less expensive vendor that could provide comparable coverage. You didn't think about that potential until it was time to part with your hard-earned income. Your customers go through this same thought process when they write that check to you each month.

With traditional rent collection, you receive the tenant's payment after he reviews an invoice listing his rental charge. This gives him an opportunity each month to reconsider his rental. With automatic rent collection, the tenant's payment is deposited before he reviews his bank statement. This often results in additional months of occupancy with no effort by you or your staff. With existing tenants staying longer, your occupancy rate increases, vacancies diminish, and you can easily raise your rental rates. So what's the catch? Processing fees.

Electronic Funds Transfer

Automatic rent collection is an electronic funds transfer (EFT). There are two common methods of EFT used in self-storage--credit cards and checks--and each carries its own merchant-fee structure. The conventional choice is to accept credit cards at your facility because they provide speed and convenience. There is no need to carry cash when a credit card only takes a few seconds.

The Federal Reserve controls all interstate commerce, including credit-card use, and only a few processors are authorized to link to the Federal Reserve system. All financial providers that handle credit cards, such as banks, must use at least one of these processors. With credit cards, there will be a processor and a financial provider, and they each add their own servicing fees.

Credit-card merchant fees are assessed as a percentage of the transaction. This ranges from a discounted 1.2 percent to a more common 2.5 percent, and these rates are negotiable. Some banks also add a flat per-transaction fee. Your merchant rate will depend on the card types you accept, your monthly transaction activity and your business clout. Generally, if your management software integrates with an in-office credit-card reader, your bank will award you a discounted merchant rate.

Your choice of bank will determine which credit-card fee structure is available to you. If your relationship with your bank was prearranged by your management-software provider, they may have a profit-sharing arrangement that adds another fee layer to your merchant rate. As with all business arrangements, adding middlemen adds unnecessary costs.

Automatic Clearing House

The second method of automatic EFT is the electronic check draft. This processing method is called an automatic clearing house (ACH). ACH is not new. It is the same system used by the federal government to distribute pension, insurance and retirement payments as well as collect taxes. Similar to credit cards, ACH is conducted through the Federal Reserve Banking System's electronic network.

For ACH, the renter can have any type of checking account--which 90 percent of all adult Americans have--or a savings account that has check-writing privileges. When a tenant's payment is processed through ACH, only two to three business days are required for the funds to transfer. Furthermore, ACH transactions are given preferential treatment. If a tenant's account has limited funds, the ACH debits are processed before any paper checks.

"This is a win-win arrangement secured by the protection of the Federal Reserve Board's Regulation 'E' and the U. S. government's Electronic Funds Transfer Act," says John Hinton, president of ePaymentSystems Inc. "The tenant simply signs a form to authorize automatic deductions and can revoke that authorization at any time."

You and your tenants will receive a monthly reconciliation report detailing the automated payments. Another advantage to ACH is, unlike credit cards, there are no transaction fees paid by the customer. The only transactional charge is a deposit reduction paid by the storage operator. ACH charges less than 25 cents per checking transaction. As with credit cards, the management-software companies and third-party agencies are free to participate in profit sharing and design their own retail-merchant pricing. "We provide an ACH integration to several software makers. We batch process the checks each evening," says John Boylan, president of EFTechnologies. He warns, "There is no method for us to know if the checks are good."

Self-storage owners are the end user, and their processing fee will range from a flat rate of 25 cents to a high of 1.2 percent of the transaction value or more, depending on the fee arrangement made by the other companies involved. These fees can dig deeply into your income stream. Let's say your site has an average monthly rental rate of $70, and 200 tenants use your convenient ACH service. At a flat rate of 25 cents per EFT, your annual servicing fee totals $600. At a rate of 1.2 percent of the transaction, the annual fee jumps to more than $2,000, and some companies are charging even higher rates.

As with credit cards, ACH merchant fees are quite negotiable and vary widely. If you plan to actively use the ACH program, you should shop around for the best pricing. The potential savings will pay for your management software many times over. At the same time, your customers will love your EFT services. They will save check-writing time and postage expense. They remove the risk of their payments becoming lost or delayed in the mail. Their bill is paid on time even if they are busy or away from home, and that prevents a late payment that could damage their credit rating.

By offering EFT services, you strengthen your customer relationship and enhance customer retention. Without question, automatic rent collection is sheer moneymaking power, and a must-have feature for any thriving business.

Doug Carner is the vice president of marketing for QuikStor Security & Software, a Sherman Oaks, Calif.-based company specializing in security, software and management for the self-storage industry. For more information, call 800.321.1987; e-mail doug@quikstor.com; visit www.quikstor.com.

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