What to do when a Tenant is Behind on Rent

Today’s guest post if by Bill Gray, an expert on collecting from past due tenants.

When a tenant is behind in rent, when should you call it quits?

Today I reviewed over eighty tenant debt accounts and noted that the average balance due is significantly higher than a year ago.  With the exception of the most expensive areas (such as California, New York City, and the northeast), the average amount of tenant debt is normally between $2500 and $3000.

I separated all accounts over $4000 and took a hard look at them to determine why there were so many high balances.  The answer was that landlords allowed tenants to go month after month paying little or no rent, before they were eventually evicted or the tenant skipped out. This is obviously a sign of the times.

I assume landlords are allowing tenants to live in their units for three to four months without paying rent for one of two reasons:

1. Compassion – Times are tough and some landlords are trying to help their tenants through a rough period.  I admire anyone who would help someone out.

2. Low Occupancy – The rational is that if a landlord has empty units he cannot rent, then a promise to pay from a current tenant is better than an another empty unit.

Of course, how you handle a tenant who is delinquent on rent is up to you.  Speaking from experience, I can tell you that once a tenant becomes two months behind, the likelihood that he will get current and stay current on rent is very slim.  If I had a dollar for every story I have heard from landlords about them bending over backwards for a tenant only to get burned in the end, I could take a very nice vacation.

From a collection standpoint, the higher the balance, the tougher the debt is to collect.  Not only is it tougher to collect, the landlord is out a lot of money, and is now emotional about the debt.  By the time the landlord gives the collection account to an agency, he or she is upset and wants the account collected immediately.  Now the agency has a client whose expectations are way too high.  Logically, if the tenant would not, or could not, pay when he actually lived in the rental unit, how likely is it that he will immediately pay a collection agency?

I am not suggesting that the debt will never be collected.  However, if it is collected, it will most likely take some time.  The circumstances that got the tenant into a difficult financial situation must change, and he must be motivated to improve his credit rating before he will pay.  Again, reporting tenant debt to Experian, Equifax, and TransUnion is very important if the debt is ever to be collected.

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Top 5 ways to Succeed as a Collector

It’s the first day for a new collector, you have trained them on the laws but they come to you for advice.  What would you tell them?

1.  LISTEN to the customer, listen more, talk less. You will learn much more this way and be better able to help the customer as well as making a good first impression.   Customer’s LOVE to have someone listen to them rather than tell them what they should do.

2.  RESEARCH the company you have been hired for.  Learn as much as possible about the product or service, if you don’t have any knowledge about the product or service,  familiarize yourself with the other people who work at the company and what they do.   This way after you listen to the customer and are able to determine the best way to help
them, you can let them know you are new but are able to direct them to the person most able to answer any questions or help them. This is always appreciated.

3.  Ask precise questions, be confident, clear and to the point.  You can never be to clear.

4.  Smile and don’t be overbearing.  Remember everything you dislike about pushy sales people and don’t do any of those things. Keep smiling.

5.  Closing the call and follow up.

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Paying off a past due balance while ordering more products

Michelle,

Since 1995 my husband & I own a small company. Around 2007 we aquired a lot of debt through our vendor who we still currently use. They put us on COD in ’08 while paying what we can (average of $200 a mon.) on past debt. Everything seemed fine, now they want more money a month ($500.00 a mon.) which we just cannot afford. If we don’t accept that, they will put our account on hold preventing us from getting our supplies that we pay COD. What are our options? We have thought about going to the Director of Credit through the company and trying to negotiate a settlement. If it weren’t being the only supplier in our state, I would continue to pay the $200 a month and let them put our account on hold and use someone else for our current supplies, but that is not an option. I sure hope you can give me some insight on this matter. I’ve spent the last 2 evenings searching the internet for any solution. Thank you! Mysti

Dear  Mysti,

If you are paying COD for purchases while you pay down a past due balance, it is very unlikely you can negotiate a settlement on the past due balance.  That might only happen if you were no longer purchasing from this vendor.  When they offer a settlement, they lose money, and all of their profit.

Your options are to pay off what you owe so you don’t have the past due balance and then continue to pay COD for future orders so that you don’t ever have a balance due and therefore would never have a past due balance. If you cannot pay the balance you owe them but still want product from them, being a business person I am sure you understand they must be paid and cannot offer you continued service without being paid. You could try going to your local bank to get a loan for the amount you owe this company, that way you can make payments to the bank that might be more affordable for you and you could continue ordering from this company on a COD basis to avoid getting further into debt.

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Business to Business Collection Agency

Michelle, We are getting ready to roll out a B2B Collection agency and have some questions:

Do we need any licensing if no consumer collections?

Yes, if the state you are in or the states you are collecting in require it.

Do we need to be bonded if doing B2B collections or only if a client wants it?

You will need to be bonded if the state requires it.

Do you have an example agency agreement we could use?

I have some in my book, The First book of Effective Collection Agency Letters & Forms, there may also be some available online but make sure to have it looked at by an attorney.

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Crazy Collection Stories

Ah, there are so many!  I once had a debtor that I called about a bill (this was someone I had been calling for months) and her reason for not paying the bill was that she lost her glasses and couldn’t read her mail so she didn’t know she owed the money.

Another woman once told me she was help up at the post office and the man took all of her mail and the check she was sending me was in the pile that was stolen.

What’s your craziest collection story?

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Biggest Credit and Collection Mistakes

The biggest mistake business owners make when extending credit is not checking credit or extending credit blindly to anyone who walks in the door.

Another big mistake business owners make with credit & collections is not staying up to date on how people are ordering or paying their bills, they need to make sure customers are paying on time and if they start to fall behind they want to take action sooner than later.

In my experience business owners wait much to long before following up with a customer or taking collection action.

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Posted in Ask Michelle, Being a Great Collector, Business Credit, Collections for Creditors, FAQ's, Getting Paid - Michelle Dunn - Business Finance Columni, Networking | Tagged , , , | Leave a comment

Top 3 Signs a potential customer is a Credit Risk

How can you tell if a customer might be a credit risk?  There are signs you can look for.

  1. If they shy away from filling out any paperwork, be cautious.  If someone has good credit and nothing to hide they have no problem filling out paperwork.
  2. If they can’t give you a land line phone number or other contact information, this should be a red flag.
  3. If they won’t give you any references, saying things such as I am new to the area, or I don’t have any references, I am trying to establish credit, be careful.

You can still do business with a customer like this but start out as COD or pre-payment required.  Once they fill out a credit application and you check their credit, if they have minimal credit, work with them and offer something such as 50% down and 50% due at delivery.

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Posted in Being a Great Collector, Business Credit, Checking credit, Credit Crisis, Credit Crunch, Credit Policy Questions, Credit reports, Customer Service, Economic Crisis, Excuses, FAQ's | Tagged , , , , , , | Leave a comment

Setting Credit Limits

You have your signed credit applications, you are having your customers fill them out and checking references.

Now your stuck.

How do you decide how much credit to extend or if you should extend credit to this person?

There are no set rules for this, each application and responses from the references will be different.  Some things to consider:

  • How long has this person been at their current job?
  • How long have they lived at their current address?
  • How long have they had this bank account at their bank?
  • Does their spouse have a job?
  • Did any of the references have anything negative to say?

If someone is new to a job, or moves often, and changes banks often, they migth be a risk.  So those are some things to consider.  You can even ask them for prior job information if this one is new, or prior bank information and ask them why they switched banks.

ALWAYS start out LOW, as the customer orders and pays you you can re-evaluate the credit limit in 3-6 months.  This will minimize your risk and let you evaluate how this person will order, how they will pay and help you to decide if you want to increase your risk based on your experiences with the new customer.

Free Collection Guide for Creditors-free guide about collecting money, free collections guide, free informatio about debt collection

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Posted in Business Credit, Checking credit, Collection Tools, Credit Policy Questions, Credit reports, Excuses, FAQ's, Foreclosure, Marketing | Tagged , , , , | Leave a comment

Enforcing your Credit Policy

So you finally have a credit policy written and ready to go!

How can you get everyone at your company to follow the policy?

This can be harder than writing the policy!  First of all, have a metting and give everyone a copy of the credit policy.  Let everyone know that if they extend credit or don’t follow the policy and it costs the business money, they will be responsible for that loss of funds and/or that they will then be responsible for collecting that money.

You must be firm, think of your credit policy as your child.  Be strict, don’t bend the rules, not even once because once you do, the rules will be bent more and more and your policy will be useless.

I have been in this situation, and have seen it happen. My best advice to you is to follow the policy strictly, set a precendence so everyone knows, it must be followed and no exceptions will be made.

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Posted in Business Credit, Checking credit, Credit Policy Questions, Education, FAQ's, Helping Debtors, Know your Debtors, Laws, linkedin | Tagged , , , | Leave a comment

Getting a Handle on Credit Management

Who is “In charge” of your business credit?

So many people can’t answer this question! Not a good thing!

If you can’t answer this question you need to look around and decide who is going to be in charge of your credit.  Your life will be so much easier and less stressful if one person is in charge of extending credit and following up with customers who have credit.

Trust me, I have been there, done that. The economy is causing us all to stress about money right now, you can alleviate so much of that stress and have more money coming in if you pick one person to focus on your customers that have credit.

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Posted in Being a Great Collector, Business Credit, Checking credit, Collections for Creditors, Credit Policy Questions, Credit reports, Customer Service, Education, Excuses, FAQ's, Getting Paid - Michelle Dunn - Business Finance Columni, Know your Debtors, Online Collection Techniques, Online payment options, Payment Plans | Tagged , , , , | Leave a comment