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Commercial Property Management: Rent Collection
Property managers spend much of their time collecting rent. It is perhaps the most important role since without rent payments, the property is not profitable. Rent collection involves a three-step process:
Step 1: Invoice tenants
Step 2: Track payments
Step 3: Collect late payments and assess late fees
Invoicing tenants is a crucial step in the collections process. An invoice is used by management to remind tenants that their rent is due. Tenants use invoices to remit their payment and to track their payments for the purpose of calculating their operating expenses.
If you only have a few tenants, you can create invoices using a word processor like Microsoft Word. Most word processing programs have invoice templates you can use so you don’t have to create one from scratch. All that you must do is enter each tenant’s rent information in the invoice template. Once you have generated the invoice, you can email, mail, or hand-deliver the invoice to the tenant. It is important to note that if you choose to create the invoices yourself, you will also need to create a spreadsheet to track payments. Spreadsheets will be discussed in more detail in the ‘Tracking Payments’ section below.
If you have many tenants, you may be better-served by using an invoice program such as Zoho or Quicken. Invoice programs automatically generate and track invoices. All you must do is input each tenant’s rent info and specify a date that the invoice should be sent (ex. first day of each month). The program will then automatically send the invoices on the specified date. Once the rent is paid, you close out the invoice by simply entering the amount paid. Doing this allows the program to track payments so a spreadsheet may not be necessary. Invoicing programs save time and help ensure the invoices are accurate and delivered in a timely fashion.
Tracking Rent Payments
The best way to track payments is by using a “rent roll”. A rent roll is basically a spreadsheet that is used to track rent payments and late fees. Most property managers use one rent roll spreadsheet per month. The spreadsheet should, at the very least, include the following categories:
Lease Begin Date
Lease End Date
Collecting Late Payments and Assessing Late Fees
After the due date for rent has passed, you can use the monthly rent roll to determine which tenant has not yet paid. If the tenant’s lease states that a late fee may be assessed, you should send a letter to the tenant stating that the rent is past due and a late fee is being assessed. The letter should also specify when the landlord may move to evict the tenant for nonpayment according to both the lease and applicable state law.
Commercial leases typically assess late fees ranging from $25-$100 for payments made past the due date. Some property managers, including myself, forgo charging a late fee in an effort to build better relations with the tenants. In my view, sacrificing a minimal late fee is a small price to pay for establishing a good relationship with the tenants.
The information in this article is for general information purposes only. Nothing on this or associated pages, comments, answers, or other communications should be taken as legal advice. The information provided is not intended to create, and viewing of this information does not constitute, an attorney-client relationship.
© 2012 Bahin Ameri