Tips on how to minimise arrears

Tips on how to minimise arrears

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While falling into arrears can be burdensome for agencies, a couple of property management directors have found that it is possible to keep arrears below 1 per cent with a few key strategies.

One vital lesson is the importance of communication, which must be persistent and often proactive in order to minimise arrears.

RPM discussed arrears with three experienced directors who all highlighted the need for agents to clearly explain their arrears policy with tenants before the lease is signed.

Other key takeaways from our discussions included zero tolerance, positive reinforcement and some simple payment strategies to ensure tenants pay their rent on time.

Prevention is better than arrears

PPM Group director Debbie Palmer says agencies that have the lowest arrears rates are the ones that have automatic debit payments for their tenants.

“It really comes down to property selection and educating the tenant from the outset in the consequences of late payments,” she says.

Ms Palmer emphasises the importance of a thorough tenant selection process and using the 70/30 whereby 30 per cent of the tenant’s total income generally indicates how much they can afford in rent.

According Ms Palmer, reminder letters are best to be avoided since many tenants will find them easy to ignore.

“There needs to be constant contact and follow-through with SMS, telephone calls or, in serious cases, a visit to the property,” she says.

“Let them know that the late payments will be noted on their payment ledger that could affect their ability to rent in the future or they could be listed with a default agency.”

Ms Palmer says property managers can also consider introducing ‘emergency’ credit card payments for arrears by taking credit card details over the telephone if they don’t have money on hand.

“And don’t forget to include positive reinforcement, like if they pay rent on time they will be awarded with a six or 12-month ‘rent paid on time’ certificate.”

Communication is king

Dave Skow, director of Wagga Property Management, has found that through daily monitoring and a zero-tolerance attitude he has been able to keep arrears below 1 per cent.

“Our tenants receive a daily SMS from the time they are 1 day in arrears, and our arrears handling procedure then allows for letters and phone calls if the rent remains unpaid,” he says.

“We stress to tenants that it is important for us to be kept informed if there is going to be an issue with late payment and that a landlord will always look much more favourably upon a tenant who forewarns us about any issue, rather than those who just don’t pay and then go into hiding.”

Mr Skow stresses that communication is paramount and explaining the agency’s rental arrears policy clearly ensures tenants aren’t surprised when they receive SMS warnings the moment they’re in arrears.

“We also open the discussion with both landlord and tenant about whether ongoing affordability is going to be an issue and discuss with the landlord how we may curb this by offering amenable break lease terms,” he adds.

Zero tolerance, zero compromise

Leading Property Managers of Australia director Darren Hunter says there are a variety of elements that go into making a low to zero-arrears list – such as zero compromise, having the right payment methods and good communication amongst staff and tenants.

Mr Hunter says tenants should be handled on a case-by-case basis, particularly if there are genuine circumstances and the tenants have been proactive in their communication.

“This type of tenant usually does whatever they can to ensure their rent will get back on track as their previous performance tells you that their rent is a priority,” he says.

“However if their previous performance is poor and they claim financial hardship, tolerance will be limited to their track record, so if they’re poor at paying rent when they were not in hardship then zero tolerance may be applied in this scenario.”

Mr Hunter says property managers should adhere adopt a thorough tenant induction process to ensure all tenants knows the agency’s arrears policy and consequences of late payments.

“To minimise or eliminate arrears treat the tenant three days behind like it is 30 days in arrears and five days like it’s 50,” he says.

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