Collection agencies look for any opportunity to help you retrieve the money owed to you. While you should use these firms when the time comes, you must understand when it is appropriate. Sometimes tenants may not make their rental payments on time. These circumstances can befall even the most well-intentioned and experienced landlords. To better prepare for such a situation, discover when you should go to a collection agency for help, how to use them effectively, and explore some ways you might prevent these conditions altogether.
Five Situations When You Should Use a Collection Agency
Going to a collection agency is often the action to take when you have exhausted all other options. While there is no 100% guarantee you will receive your rent money, these institutions can help increase your chances. Here are some times when you should use a collection agency:
After sending the tenant a past-due notice
A past-due notice is a document you send your tenant if they are past due on their rent payment. This notice should encourage the tenant to make their payment as soon as possible; otherwise, they risk legal action. It also serves as a record of your attempt to inform the tenant of their need to pay.
After making a phone call to the tenant
If the past due notice does not reach the tenant, calling them may be the next course of action. Call any available number they provided, such as their home or mobile number. Try not to call the tenant during their work hours, as this may not be available to answer.
When you have filed in small claims court
If the rent owed to you is less than $15,000, you can try to file a claim at the small claims court in your area. This informal court provides a cost-effective process to help resolve your matter quickly. However, small claims can only dole out money judgments and cannot enforce other orders, like having the tenant return an item or leave the property.
When your tenant doesn’t pay their rent for a long time
How long you wait for your tenant to pay you depends on the clause written in the lease agreement. Whether you give your renter 30 days or two months, it may be best to take them to a collection agency once that grace period expires. Missing even one or two months of rent can severely impede your ability to make crucial payments.
When you have begun official eviction proceedings
If no other solutions work, you may have to provide your tenant with an official eviction notice. To avoid legal problems, start the eviction process through legitimate legal channels. If the threat of eviction is also ineffective, then going to a collection agency may be the next best thing.
How Long Should I Wait Before Using a Collections Agency to Collect Unpaid Rent?
While there is no definitive time limit for how long you should wait before going to a collection agency, here is a general guide you can follow:
- Immediately: If your tenant has been evicted or has walked away from the lease.
- After 30 days: If your tenant finished the lease with an unresolved balance (missing a month of rent, lost the key, unpaid property damages, etc.)
- After 60 days: If your tenant does not complete the lease agreement and breaks it without negotiating an early cancellation.
Five Steps on How to Use a Collection Agency to Collect Past Due Rent
Using a collection agency should be a simple process, but you always want to be careful about choosing the best agency to care for your unique situation. Here are five steps showing how to send a tenant to collections and get the most out of the collection agency you choose:
1. Refer to the rental agreement
Pull out your rental agreement and review it before sending your tenant to a collection agency. Highlight clauses detailing who lives on the property, when payments are due, and the penalties for late or nonpayment. This information can protect you in case there is a dispute.
2. Attempt to collect the rent first
With the rental agreement as the bread and butter of your defense, try to collect the rental payment yourself. Call your tenant a few times and leave a message explaining the situation. Send them an email and a certified letter disclosing the rent amount they owe and when it was due. Please record all your communication attempts, as they may come in handy later.
3. Hire a credible and specialized collection agency
There are many collection agencies out there vying for your business. But the one you want is a firm specializing in rent collection. These agencies have different fees, upfront costs, commission rules, and term agreements, so try to negotiate for the best price and service. Compare various institutions to ensure you find the right one for your needs.
4. Provide the agency with the necessary documentation
Going to a collection agency empty-handed will lead you to a dead end. Make sure to have all the documentation they ask for, which may include:
- Records of your communication efforts
- Collection attempts
- Number of months your tenant is past due on their rent
- Tenant’s contact information and references
- Tenant’s social security number (SSN)
- Tenant’s driver’s license
5. Report the tenants’ past due payments on their credit report
Most collection agencies will help you report these nonpayments to credit bureaus if you ask. This action will negatively impact the renter’s credit report, which may encourage them to pay the rent to avoid damage to their credit. Negative items on a tenant’s credit history can last for years and lower their credit score, affecting their ability to make future purchases, qualify for loans, and sign new agreements.
What Not to Do When Collecting Rent
Some landlords are very forgiving and graciously try to work with their tenants until they have no other option but to seek out a collection agency for help. If you still want to try collecting rent on your own, here are some things you should not do:
- Don’t try a self-help eviction: A self-help eviction is when you try to forcefully evict a tenant without going through the proper legal channels. This action is unlawful in most states and can land you in serious legal trouble.
- Don’t behave rashly: Avoid actions like removing the front door, displaying aggressive behavior, or turning off utilities.
- Don’t harass your tenant: Even if a tenant cannot or refuses to pay you rent, you shouldn’t harass them. You don’t want to cross the line and let your emotions influence you to make a careless decision.
- Don’t call your tenant outside of regular business hours: When calling your tenant about the uncollected rent, only call them between 8 a.m.-6 p.m.
- Don’t give your tenant unauthorized notices: There are many types of notices you can provide your tenants for not paying their rent but refer to your local and state laws to ensure you serve them properly.
- Don’t overuse electronic communication mediums: Try not to overdo it on communication attempts. Avoid sending 20 angry voicemails or bombarding your tenant’s email during non-business hours. Tenants may see these actions as harassment and unprofessional.
- Don’t appear unannounced: Always notify the tenant before you show up. Even though it is your property, knocking on the door unannounced to collect rent may be regarded as landlord harassment (unless the tenant agreed to the engagement).
Ways to Avoid Rent Collection Problems
The best way to skirt rent collection problems is through prevention. While there is no guarantee you will come out of a landlord-tenant contract unscathed, here are some tips that may help you avoid rent collection problems in the first place:
Conduct a thorough tenant screening
Without a doubt, conducting comprehensive background and credit checks are essential. They inform you about the viability of potential tenants and help you contract with high-quality renters with a history of paying rent on time. While not foolproof, the more thorough your tenant screening process, the better you can make the most informed decision.
Apartments.com makes it easy to screen tenants, get the information you need, and find a qualified renter fast. Unlike our competitors, who use various third-party resources to collect information, we partner with TransUnion to provide you with screening reports for evictions, credit, and criminal history. Another feature you’ll find only on Apartments.com is support for co-signers, guarantors, and co-applicants. If you need more information to make a decision, you can request supporting documents from potential tenants directly on our platform. Get all the information you need to find the right tenant quickly and easily.
Provide various payment methods
Even good tenants may sometimes struggle to make their monthly rent dues or stop paying them altogether. As a landlord or property owner, you should make paying rent as straightforward as possible by providing multiple payment methods for tenants to choose from, such as:
- Online payment portal
- Money payment applications (Cash App, Venmo, Zelle, etc.)
- Credit card
- Debit card
- Bank draft
- Money orders
- Check
- Cash
Document these options in the lease agreement to minimize confusion about acceptable payment methods.
Create a comprehensive rent collection policy
When you write your lease agreement, include a policy or clause that clearly describes the rent collection rules and expectations. Include details like:
- Partial payments are a breach of the lease agreement
- Partial payments require pre-arrangement
- Location and office hours for payment drop off
- Available payment methods
- Payment amount
- Rent due date
- Grace period
- Fees
- Penalties for late rent or nonpayment
Frequently Asked Questions
Does rent sent to collections affect the tenant’s credit?
Yes, sending records of unpaid rent to a collection agency can negatively impact your tenant’s credit. They deliver this information to credit bureaus, which often lowers the renter’s credit score and lasts several years on their credit history report.
How long do you have to wait to send someone to collections?
There is no strict wait time. It usually depends on the wording in the rental agreement. However, giving your tenant an additional 60 to 90 days past the initial due date to pay their rent before escalating the nonpayment to collections is common.
How long does a landlord have to collect unpaid rent?
The sooner you collect your unpaid rent, the better. It becomes more difficult to collect rent the longer you wait, so give your tenant a few weeks to a month before pursuing legal action.
