Digital payments have become the norm for many businesses -- especially those that cater to younger generations like millennials and Gen Zers. With tools like Venmo, PayPal (NASDAQ: PYPL), Cash App, and Zelle, customers can connect their bank accounts and pay bills with only their mobile devices and a few finger taps, no cards or checkbooks required.
For landlords, it might seem like the ideal way to streamline the rent payment process and maybe even reduce the number of perpetually late tenants. But as with anything, these seemingly seamless tools aren't without fault, and there's a lot to consider before making them part of your business strategy.
Are you considering taking digital payments from your renters? Consider these pros and cons first.
Pros of digital payment platforms
- They're easy for your tenants: Your renters don't have to find a checkbook, track down their wallet, or stop by the bank, and they can pay you from virtually anywhere, including the train home from work. Some digital payment platforms even allow automatic payments.
- They typically come with fast processing times: Depending on what platform you use, you might see the funds deposited into your account within a day or two.
- You don't have to knock on doors or call tenants: Most platforms allow you to "request" money or even send bills. This makes it easy to remind tenants of upcoming rent deadlines.
Cons of digital payment platforms
- It might be more difficult to spot if someone is late: Because payments sometimes take a few days to hit your account, it can be hard to tell whether a tenant actually sent the payment on time.
- You may have to pay processing fees: Many platforms charge fees per transaction or per account. PayPal, for example, charges 2.9% of the total payment, plus $0.30 per transaction. On a $1,000 rent payment, that'd be $29.30 per month.
- There may be limits to how much a user can send: Some platforms only allow users to send a certain amount of money at once or during a given period. Depending on your tenant's spending habits, this could make on-time payments difficult.
- There can be glitches: If a payment is sent to the wrong recipient or somehow fails to go through, you're stuck trusting the renter. Disputes with digital payment platforms can also be long and burdensome, so it might not be resolved for a while.
Best practices for accepting digital rent payments
If you do opt to accept digital rents, make sure you choose one platform and stick to it. This will make it easier to accept and transfer out money, and it will lighten your administrative load come tax season.
You should also do what you can to minimize fees. Shop around for which platforms offer the lowest ones, or think about deferring the fees to your tenants. (For example, you could charge a $25 "convenience fee" for all renters who use the platform.)
Finally, since it can sometimes take a few days for payments to hit your account, you may want to offer a three-day grace period to ensure those digital payments can be processed.
The bottom line
Accepting digital payments can certainly make things easier, for both you and your tenants. Just make sure you have clear-cut policies in place for what tools to use and when payments must be submitted. Don't stop accepting traditional forms of payment either; you'll want a backup just in case things go awry.