Push Vs. Pull Tenant Payment Systems

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Rent collection is one of the important processes and systems that occur every month in your residential real estate business. Since it is a reoccurring task you will want to make it as smooth as possible for both you and your tenants. I have not heard anyone else describe rent collection in this way, but there are two types of Rent Payment Methods that I see being used. Push methods are those that you would have to prompt the tenant to pay you, and pull methods where you initiate a process that automatically takes rent from the tenants account.

The common types of rent collection are: post-dated cheques, online payment systems (TenantPay, Rentmoola), email money transfer, cash, credit card, and pre-authorized debits.

Example of Push Methods

Often I hear new landlord’s say that they are stressed out because they always have to go to the property and pick up the rent from their tenants. Sometimes I hear this from experienced landlords as well, who have created a bad habit with their tenants.

In Ontario, it is the responsibility of the tenant to pay their rent to the landlord. This is one of the few areas of the Residential Tenancies Act that outlines an obligation of the tenant. A landlord has an obligation to provide clear instructions as to how tenants can pay their rent, but as long as you’re clear, it’s not your job to go pick up the rent. It doesn’t make sense to me that a landlord would take on a tenant responsibility by showing up at your property to collect rent.

Other examples of push methods would be cash, email money transfer, direct deposits, and online payment systems.

Example of Pull Methods

In order to make it convenient for tenants to pay for rent you can offer tenants different payment methods. One common example is to accept post-dated cheques from your tenants. My wording in the last sentence was very specific, as you can’t require this payment method, as well as other automated payment methods in Ontario, as mentioned in section 108 of the Residential Tenancies Act, but it certainly makes it easier for tenants to pay using these payment methods.

When you are ready to deposit your cheque you go out and start the process of collecting the rent at a time convenient to you and once the date on the cheque is current. This could be sitting at home in your pajamas using a banking app on your phone that allows you to deposit cheques, going to the ATM or visiting a teller at your bank to do a deposit.

Other examples of pull methods would be credit card payments and pre-authorized debits.

What Should You Consider?

In addition to the push and pull method of payment you would also want to consider how long it would take you to make the deposit (Time to Deposit), the length of time it takes the funds to clear into your bank(Time to Clear), fees associated with each transaction (Fees), and how easy is the process to use (Ease of Use).

I prefer pull methods over push methods because I feel that I spend less time organizing and chasing after rent payments. Each of the tenant payment areas to consider is scored between 1 to 10. The highest rating for each area is 10.  The idea being, a higher total score for a payment method, the better the system would be.

I will use the example of 5 duplexes that require rent collection, so basically 10 rents to collect at $1000 per rent. The properties are within a 40 minute drive of the landlord’s home. The time to deposit would include all the time necessary to collect the rent, and then put in into a bank account.

This will not include any preliminary time needed to setup a payment method. For example, having to sign forms in order to utilize an online payment system or setting up this system with your bank.

Time to clear means funds are not going to be taken back in some way, an example would be an NSF cheque.  And ease of use refers to the steps needed and level of complication that occurs what you use a particular payment method.

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Cash (Push Method=22)

Time to Deposit: 1           Time to Clear: 10              Fees: 10               Ease of Use: 1

Comments: Collecting cash could take all day if you had to negotiate the collection from 10 different people depending on their lifestyle and whether they would be home or not. Cash is king when it comes to clearing the funds. Either you have it in your hand or you don’t. There are not usually any fees beyond normal monthly banking charges for depositing cash. Collecting cash from that many tenants could be a disaster depending on the time of year. The time to deposit numbers would change however if the tenants were delivering cash to a property management office.  Even then, you could also risk losing cash to employee fraud or loss.

Email Money Transfer (Push Method=33)

Time to Deposit: 5           Time to Clear: 9                 Fees: 10               Ease of Use: 9

Comments: An email money transfer is as good as cash the problem is that they would come in over a wide range of time from a number of tenants. You need to keep track of who has paid what and when. On occasion you might get an email money transfer that has been cancelled but looks fine when you go to collect the funds. Then you would need to follow up with the tenant. The tenant would pick-up the fee associated with the transaction. The process of collecting an email money transfer is quite straightforward.

Direct Deposits (Push Method=33)

Time to Deposit: 5           Time to Clear: 8                 Fees: 10               Ease of Use: 10

Comments: If you give a tenant a bank account number they could deposit money directly into your account. You are dependent on when a tenant makes the deposit and often it will not be reflected into your account until the next business day, depending on when the deposit occurs. Some landlords might not be comfortable giving out there account number. There are few fees directed to the landlord with this method. You would simply check your bank account to ensure that the funds have been transferred into your account.

Online Payment Systems (Push Method=33)

Time to Deposit: 8           Time to Clear: 8                 Fees: 8                  Ease of Use: 9

Comments: In this particular payment system I am going to use an example of $1 per transaction. With our example of 10 transactions would cost $10+hst per month. The tenant would pay their rent like they would pay any other bill through their bank account. The payments would move through a clearinghouse and then be deposited in your bank account, which could take 48-72 hours for the process to clear. This would depend on banking days and holidays. There are usually no NSF fees that are associated with this method of payment, either the money is in your account or not.

Post-Dated Cheques (Pull Method=27)

Time to Deposit: 6           Time to Clear: 5                 Fees: 9                  Ease of Use: 7

Comments: This payment method requires you to take time to travel to a bank or setup your cheques in order to make the deposits. You also would need to collect new batches of cheques when you run out. Cheques can take up to 5 business days to clear and if it doesn’t then there are NSF fees that you would have to now collect from the tenants. Many people just don’t write cheques anymore, so they are often ordering them just for the purposes of rent collection.

Credit Card Payments (Pull Method=19)

Time to Deposit: 7           Time to Clear: 3                 Fees: 1                  Ease of Use: 8

Comments: Your business might allow you to accept credit cards but there would be additional paperwork that would need to be done to use this for rent collection purposes. There are online payment systems that use this method as a back-up or as their primary means of payment for tenants which may not pass on the fees to you. This would be a huge cost savings because fees for using a service like Square range from 2.75% – 3.5%+.15

This would be $275 when collecting $10,000 in rent on the low end. If you are using this type of service, what if a tenant were to call in and cancel their rent payment? How long after the payment was made would they be able to cancel this payment? This makes direct rent payment through credit cards more of a backup rather than a primary source of payment.

Pre-Authorized Debits (Pull Method=33)

Time to Deposit: 9          Time to Clear: 8                 Fees: 7                  Ease of Use: 9

Comments: You would use a bank to setup a small business bank account that allows you to use Pre-Approved Debits. You would have a tenant sign a form and give you a VOID cheque at the beginning of a tenancy. This allows you to setup an automatic payment system that you would initiate each month.  The process takes less than a minute and allows you to collect all the rents at once. You basically reach into all the accounts and pull out the rent amount specified in the agreement. The funds clear within 48-72 hours depending on banking days and holidays. Fees range from $25-45 per month.

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I hope that you enjoyed the observations that I have made around each of these payment methods. This is not a scientific study, just my opinion on the different payment methods available based on my experiences. The numbers will also change depending on the size of portfolio that you are talking about.  I just wanted to apply some logic to help others with their decision on which payment method to use, but am always happy to review this again as more payment methods become available or existing ones get better.

Comments on Push Vs. Pull Tenant Payment Systems

  1. Joe Vassallo says:

    Quentin, Thank you for the articles. Very informative. Cheers… Joe..

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