Your tenant stopped paying rent two months ago. He won't return your calls, and his debt now exceeds $200. You cut his lock and discover the contents of his unit are nearly worthless. It's time to consider your remedy options.

An auction will cost more than $100 to advertise and operate, plus the value of your time. Alternatively, you could spend all day in a small claims court, but a favorable ruling won't guarantee any money will follow. You don't need to write off bad debt, you need a professional collection agency, a tireless staff ready to provide complete recovery on your loss.

With nothing more than the tenant's Social Security number and a copy of the rental agreement, the agency will locate the tenant, make phone calls, send demand letters and then equally share in any recovered funds. Large collection agencies typically do debt recovery for large accounts. For them, pursuing debts of only a few hundred dollars often requires merchant fees, even if the funds are never recovered. However, smaller agencies will waive the merchant fees and provide personalized service.

"If the tenant doesn't pay, the agency will inform the credit bureaus and then monitor this debt for several years, without charging the merchant for either service," says Richard Goldman, president of Priority Collections Inc. "Debtors become highly motivated when they need to restore their credit rating to qualify for a new loan."

If you receive a check drawn on insufficient funds, Universal Merchant Services LLC offers a nationwide service that, for up to six months, will draw the funds out of the check-writer's account as deposits are made. The account holder isn't even aware he is paying off the debt until after the funds have been secured. The service fee ($15 to $30) is also drawn from the check-writer's account, making the entire process free for the self-storage operator. With an 80 percent success rate, this is a win-win solution.

Prevention Is Best

How do you prevent bad debt from happening in the first place? Automate the payment process. By automatically drawing rent payments from a tenant's checking account or credit card, you possess the funds before his grace period has expired. The customer receives a bank statement listing his rent payment after the funds have been posted to your company account. Automatic rent collection saves you the time and expense of mailing invoices and late letters. Without invoices to remind tenants of your rental rates, they retain their storage unit for a longer period of time.

For the last seven years, I have analyzed the effects of automatic rent collection at hundreds of storage facilities. A tenant that would move out after seven months is 60 percent more likely to stay one extra month when you use an automatic rent-collection service. This translates into an 8.6 percent increase in occupancy. If your site was previously at 95 percent occupancy, you are now completely full and must maintain a waiting list. With vacant units scarce, it is time to raise your basic rental rates. With higher occupancy and higher rental rates, the end result is a substantial increase in your company's revenue stream. Furthermore, you collect the tenant's payment on the due date.

So what's the catch? Bank fees. The profitability of automatic rent collection is dependant on the banking fees you are required to pay. Makers of self-storage software use their influence to secure discount rates for the storage facilities they serve. The bigger the software company's influence, the lower the rates you must pay. With a little shopping around, you will find rates as low as 25 cents per transaction and as high as 1.3 percent for automatic checking withdrawal. For credit cards, the fee ranges from 1.55 percent to 3.2 percent. The rates for either method vary so wildly they can account for thousands of dollars in fees--more than enough to pay for your entire software purchase.

Sometimes you have to accept a written check. While seeing a photo ID is good, getting instant check verification is better. Check verification is a feature offered by the larger management-software companies. Just type in the customer's check information and the management software will instantly retrieve the customer's bank account status before you accept his payment. You will never be caught off guard by a move-in check that was written on an overdrawn account. The service is fast, easy and costs just 25 cents per transaction. Ask your software provider for availability and rates.

Long gone are the days of mailing invoices in the hope of being paid before a tenant's due date. The self-storage industry posts billions of dollars in monthly revenue. This level of activity has encouraged collection innovations and competition among banking rates. Ask your software vendor about these services. If their banking fees are too high, switching management software may be your best return on investment.

To contact Priority Collections Inc., call 866.705.8444 or e-mail [email protected]. For a copy of the sign-up form for Universal Merchant Service, e-mail [email protected].

Doug Carner is the vice president of marketing for QuikStor Security & Software, a California-based company specializing in access control, management software, video surveillance and call-center products for the self-storage industry. For more information, call 800.321.1987; e-mail [email protected]; visit www.quikstor.com.