Many landlords wonder about which types of payment options they should accept from their tenants. What if your tenant doesn't have a bank account or use checks? Is it safe to accept cash from tenants? Every type of payment option has its benefits and downsides, so it's critical to assess what's most important to you, whether it's transaction fees, security or convenience. Here's a look at the pros and cons of different payment options:
Many landlords prefer cash payments for several reasons. Unlike a check, you don't have to wait for it to clear, and there is no risk of a bounced check. While cash is a safe option, it's extremely important to provide your tenants with a receipt (make sure to keep a copy for yourself) so you have a clear paper trail if any discrepancies arise in the future.
The main drawback to cash is that you or someone who works for you has to meet with the tenant in person to collect the money, a time-consuming task if you have a lot of tenants. It can take even longer if you're driving to different properties. Even if you ask your tenants to come to you, they may accidentally or purposefully miss the meeting time. For all of these reasons, cash typically works best if you have very few tenants, and the tenants live close by. If time isn't an issue, however, collecting cash payments gives you a good opportunity to check in with your tenants.
If your tenant does not have a bank account, you may also consider accepting money orders. These are considered safer than personal checks because they are backed by a third party. Tenants will have no trouble obtaining one, as they're available at the post office, big retailers and many drug stores. In addition, money orders can be mailed to you, so you don't need to waste time and energy personally meeting with all of your tenants every month to collect payment.
The downside is that, even though it's difficult to cancel a money order, it's still possible. Also, your tenants will have to pay for the money order each month, which they may not be happy about. Money orders are a good option if you have several tenants and want the convenience of having payments mailed to you. Just make sure your tenants understand that they need to purchase one every month.
If you're dealing with tenants without bank accounts, you can also accept credit card payments. It's very simple to set up a basic merchant account with PayPal. The site is completely secure, and you don't have to worry about checks or money orders getting lost in the mail. Tenants find it very convenient and easy to use, as most people are already accustomed to paying their bills online. You can also send invoices electronically.
Just be aware that PayPal will charge you a small transaction fee, so this option is best if you don't mind paying a little extra for convenience.
If your tenants don't have bank accounts or don't want to write checks, you can still find a payment option that works for everyone. Just make sure you carefully consider the benefits and costs of each method before deciding which payment options to accept.
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