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How to deal with non-paying tenants before serving notice.
Tenants who don’t pay can be more than a headache for your property business, if you do not have the skills to pursue missed rent then you need to make sure your management team does.
Tenants can miss rent for a number of reasons, from simply ‘forgetting’ or due to much more serious reasons, such as recently being made unemployed.
I have had many years’ experience asking for missed rent, some cases I handled really badly, and others I handled really well. I have now passed the lessons from these experiences to our tenant manager Jenny so we minimise unpaid rent, I am also going to share those lessons with you.
I am going to share 5 tips on how to deal with missed rent BEFORE you serve notice through a section 21 or section 8 notice.
1.Method of collection,
I know it’s a cliché, but when it comes to ‘missed rent’ prevention is definitely better than cure. For years I was advised to use a ‘Direct Debit’ system to collect rent, after years of checking the bank statement over and over again and having such a high number of late payers I finally introduced a Direct Debit system. You do not have to be a ‘big’ company to use direct debit. We use a system called GoCardless, (https://gocardless.com/). The cost is no more than £2 per transaction and is worth every penny. The benefits are:
Automatic notification when a direct debit fails
Automatic invoices sent to the tenant
An automatic record of rent payment
It looks more professional, tenants take you more seriously
When signing up tenants some will not be able to set up a direct debit, these tend to be from outside the U.K. It’s up to you how you handle this. I don’t outright refuse them, as non U.K. tenants make up more than 40% of our occupancy. I tend to let them know that not having a direct debit is a great inconvenience to us and will only be allowed for a certain set time, until they can open a U.K account. Keep following up on their progress on this. If they are from the U.K with an account then they must have a very good reason for delaying the setup of direct debit.
2. Date of collection
Another Preventative tip! Our typical tenant profile in a HMO will very rarely check their bank statement, they are used to the automated world where money goes in at the end of the month and all bills come out at the start of the month. Regardless of your collection system, Make sure your rent comes out within the first few days of the month, otherwise you are competing with other tenant expenditures that may leave too little in the bank to pay your rent.
3. Three points of contact
1st contact - it should be a light text or email,
Just checking everything is ok? Your rent has not been paid yet’
This ideally should be done the day after your rent is due, it’s a way of saying, that you’re not being an arsehole about this yet but you are aware of it and it needs an explanation. If you do not get a reply that same day then generally something is wrong! Go to second contact.
2nd contact - The next day! Call and text and send an email (that’s right we do all three!)
So this is how it normally goes
I call and get no response, it goes to voicemail
I send a text to say I have just called and left a voicemail.
I send an email stating that I have called and text and had no reply, (along with the reason for the contact)
3rd contact - Best by email, but send a text saying you have sent the email.
Again this should be relatively close in time to your previous communication, preferably the day after. You’re not messing around now, please respond or the next communication will be asking them to leave!
4. Firm but fare payment agreement
This is tough, it is probably the thing that requires the most skill and experience. Once someone has communicated it’s only fair that you listen to their explanation, and if possible work with them to solve the issue. The reason this is tough, is that there could be a genuine issue which is NOT the fault of the tenant.
Listen and sympathise! But ultimately the outcome should be the same, you agree how the arrears is going to be paid back and when, explain that though you sympathise you can only help to a certain degree as you are not a charity.
I suggest asking the tenant to make the first contribution relatively quickly, if you leave it another whole month then you won’t know if the tenant wants, or has the ability to keep to their agreement.
If they fail on the first hurdle, unfortunately, you have no choice to serve notice.
5. Watch out for your tenants
Unfortunately not paying rent can just be the tip of the ice berg, I have often seen it coupled with other things such as depression and stress, I think our welfare system does no favours for people who have been made unemployed, the time frame it takes to be classed as unemployed is too long. This must carry the constant threat of potential homelessness. We always collect a next of kin contact, and in some cases make them aware of missed rent etc. One of the biggest tell tail signs that someone may be suffering is lies. I have had my fair share of people outright lie to me that they have paid their rent, possibly in the hope that I won’t check (ALWAYS CHECK!).
Hopefully by applying all the methods above you have 100% payment from your tenants, but do be prepared financially and mentally to cope with a few non payers.
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