As credit card payment is very convenient most tenants want to pay their rent using this service so that they can also get the rewards and benefits such as cashback programs and travel rewards. However, landlords usually do not prefer credit card payments. Ever wondered why?
Why Don’t Landlords Accept Credit Card Payments?
Landlords do not accept payments made through credit cards because it costs them money when they accept credit card payments and they are not willing to pay such card processing fees. Landlords usually prefer cash or cheques and avoid credit card payments. There are plenty of people who would like to offer their credit card while paying for the property or rent but are refused. If you are among them, you are not alone because almost all of them have been denied by landlords.
Landlords would like to have payments in the form of automatic withdrawals, cash, cheques that are postdated, and, in some cases, even money order but never in the form of credit cards. Although credit cards are so convenient and efficient still, they are unacceptable. Here are some reasons why landlords do not accept credit card payments:
Credit Card Chargebacks
Landlords who are troubled about collecting rent face a common problem which is credit card chargebacks. Any credit cardholder holds the possibility of disputing a charge especially when it’s something like a rent payment. Credit card chargebacks are meant for solving and preventing issues concerned with stolen cards or fraud but are misused by some people.
However, the charge can be reversed obviously when the landlord can convince the company of the credit card that they haven’t approved of the charge. However, the landlords do not want to take the risk and therefore avoid credit card payments as credit card chargebacks can become a costly business for them.
Issues with the payment date
As for most people, the first day of each month is when the rent is due. Though in some cases it may be due every 3 to 6 months, or two weeks or every week depending on the property owner. Mostly, all the leases have a specific date on which it processes the payment. It does not matter what is the length of it.
All property owners who have rented their properties are relying on this income when they make a budget for their living including their salaries and building maintenance.
This when the concern of landlords comes into play. Credit card companies usually are unable to process the payments on the same date the card is used for making the payment. This means there can be a possible gap of three to five working days or even more till the landlord has the payment in their hands. Now, this could lead to serious problems for property owners who have prepared a budget based on their rental income. Hence landlords do not accept credit card payments.
Doubt on the tenant
When a tenant makes a payment using a credit card, then there are chances that the payment does not process on the time it should be. This could also lead to an assumption that the tenant has not made the payment. Now this assumption can either be right or wrong. Both possibilities are present.
This could lead to an eviction order according to many jurisdictions. There are cases in which tenants have actually made the payments and by the time they are processed. The order for eviction has also gone through resulting in the loss of money, effort, and time of both the tenant and the landlord.
Moreover, at times when tenants want more time to make the payment or are looking for a place to move. Consider claiming that they have made the payment using a credit card when they have not. Tenants blamed the processing time of the credit card payment when they have no intention of paying. Therefore, landlords avoid such risks.
Unaffordable interchange fees
Credit card networks charge fees every time a transaction is made from the business. The same is the case for landlords. Landlords are not willing to get into this costly business lose their money in such interchange fees.
Moreover, when you have to use a credit card machine. You will have to pay for the machine itself and also for the platform’s access. These fees are not affordable for landlords and cut their profits. An interchange fee is charged by almost all credit card companies and is an amount paid by the acquirer ( that is the landlord’s bank). To the issuer (which is the tenant’s bank) to compensate the tenant for the benefits. And value that the landlord would receive when they would accept credit card payments.
You might have noticed that you get a small fee while purchasing an item from somewhere using your credit card. This fee is what the business is giving you as an interchange fee.
The interchange fee has both pros and cons. For bigger corporations such as banks. These fees help reduce the heavy charges they would be required to pay for giving cards to end-users. Whereas, for smaller corporations and entrepreneurs these would be passed on to the one making the payments.
Costly percentage deductions
Every time a payment is incurred on the system. There is a deduction of 2.5 to 5% on the total payment on the business’s accounts. These extra fees are very common. Landlords for example accept about a 500-dollar payment which means there would be a deduction of 25 dollars every month. This would be very expensive for landlords as it would lead to 3 hundred dollars on annual basis.
If a landlord has a big complex then you can multiply it by a hundred. Two hundred, or even three hundred which means he would lose about thirty thousand to ninety dollars every year. That is a great loss keeping in mind that landlords do not have a big profit margin. A landlord is already bearing the cost of building or apartment maintenance and losing this much money would mean a lot to them.
Risk of frauds
Another reason why landlords avoid credit card transactions is because of the risk of fraud. Credit card fraud is very common globally. Moreover, there is a chance of identity theft as well. When people steal the identity of others and use that identity to rent a place for them it is known as identity theft.
In such cases, they are most likely to run away immediately by cutting all ties. However, in this case, the landlord suffers as the credit card company reverses the transactions. Moreover, landlords cannot deal with damage or non-payment issues in case of fraudulent credit card use. In such a fraud, mostly the owner of the credit card is considered the true payor.
In such cases, it becomes very hard to find out who is paying and who shall be held responsible for damage or nonpayment.
If not Credit Cards, then What payment methods are accepted by landlords?
Landlords have a very little profit margin therefore they do not want to waste any of their rental money on unnecessary extra charges. Landlords most likely accept four payment options which are money order, online payments, certified cheques, and cashier cheques. Apart from this cash is their most preferred payment option.
Online payments are also preferable in which landlords are not required to give any personal banking information. Tenants can quickly transfer the amount to landlords and landlords can easily receive the amount with fewer efforts.
Here are some rent collection methods accepted by landlords:
Online collection is one way to accept your tenants’ rental payments. However, a landlord must keep in mind that there might be some tenants who would not have access to online resources. So he must also accept rent through other payment method such as mail.
Moreover, there are various online websites which let the tenants pay rent. To their landlords such as RentMatic, RentMerchant and ERentPayment.
There are other online platforms that provide extra services such as letting the landlord upload important documents and, forms and sending messages or reminders to tenants.
- Collection of rent through mail
Landlords can allow tenants to mail their rental payments to them via mail. This would save the time of personally collecting the rents as well as it would be easier for the tenants as well. However, there are certain drawbacks of this. One is that you might receive the envelope several days later. Although the tenant would have posted it on time.
Moreover, in some cases the tenants might claim to have sent the payment but would say that the envelope might have gotten lost in the mail. However, in reality the tenant would not have posted the envelope in the first place.
Having a drop off location
If the landlord has an office, he can choose it to be a rent drop off location for his tenants. However, never make your home address your drop off location as it would not be wise.
- Collecting rent in person
Another way is to simply collect the rental payment in person by visiting every door personally. This would let all your payments be in your hands. However, this could turn out to be very time taking and, frustrating as sometimes the tenant might be home sometimes not. But if your payments are in cash then this would be the best method as you can personally count the money.
- Hiring a property management company
A fifth option is to hire a property management company that could collect the rents, deal with the complaints of the tenants, fill vacancies and handle maintenance issues as well. All you have to do is sign a contract with the company and pay an amount for the services you want from the company.
Factors Considered by Landlords before selecting a Payment Method
A rent collection for landlords not only adds to the convenience of collecting rent every month but, also adds to the ease of tracking the tenants who are on time with their rent and the ones who are late every month. It is not necessary that for every landlord the same payment option works best. For every landlord, a payment option may or may not be suitable depending on their situation.
There are some factors that play a role in selecting the right payment method. These are:
- The Rental Units
One of the first and most important factor that landlords consider before deciding which payment option they would choose is the number of tenants they have. The reason behind this is that if you have for example 30 rental properties, you would not want to go personally to each property and collect the rent every month. Would you?
In this case, you would want a convenient and more streamlined method of rent collection. Whereas, if it is just one tenant than it would not be a problem to go personally and collect rent.
How far you live from the Rental property
Apart from the number of tenants a landlord has, the distance from where the landlord lives to where the rental property is located also counts. It would not be convenient to drive across miles to just collect a rent. In such a case, it would be more convenient to hire a third party to get the rent or using an electronic funds transfer.
- Your willingness to have an interaction with your tenants
The third factor that comes under consideration, is that how willing the landlord is to interact with his tenants. This totally depends on the landlord as he might be having just two tenants but would not be comfortable in going personally to them. Whereas, a landlord who has 5 rental units would be more than willing to go personally to their doors and collect the rents, if the distance is coverable.
In a case, where the landlord is not comfortable in interacting with his or her tenants and electronic transfer or mail is a better option.
- Your comfortableness with the technology
Electronic funds transfer requires the landlord to be comfortable with technology. However, if he or she is not comfortable with technology than they must opt for the other options for rental collections.
Why tenants are keener to make payments through credit cards?
If you are yourself a landlord or you know someone who is a landlord, you would often hear them saying that his or her tenants are always pressurizing them to collect payments thorough credit cards. Why is so?
This is because, although, landlords face a lot of consequences when they accept credit card payments but the benefits of credit card payments cannot be disputed upon.
- Credit cards are convenient as you do not have to be concerned about having cash in your hand.
- Moreover, as we all have a problem of keeping track of our finances, using a credit card helps in keeping a useful record of the spending. Some credit card companies also send summaries at the year-end which are very much helpful when you are doing your taxation.
- In many instances, we need to pay the rent but there is time in getting our salaries. In such case scenarios credit cards are very helpful and can help you make those rent payments. This also means you can get an amount of money which you need right away before waiting for your paycheck.
Tenants are aware of all these benefits which is why they insist upon using their credit card for payments but unfortunately credit card payments are not very tempting for landlords.
However, debit cards and credit cards both are avoided by landlords.