Homeowners should insist about making payments on time.
However, the most well-written policy is useless if it's not implemented effectively.
Here are 7 tips for creating an effective late fee policy:
Include 3 numbers: The day the payment is due (e.g. the first day of every month); the day the late fee kicks in (e.g. 5 days after the due date); and the fee amount (e.g. $10 per day).
Decide between a flat fee and an escalating fee. Will you charge $10 per day; or $5 on day 1, $10 on day 2, and so on?
Cap fees at a reasonable maximum. If your fee escalates each day, keep in mind that it'll multiply at an exponential rate. If you charge $5 on day 1, $10 on day 2, and so on, after just 2 weeks, you’d have charged $525 in late fees. At that rate, a late-paying owner is being pushed deeper into debt, making it less likely that you’ll see your money.
Check local & state laws to make sure you don’t exceed a maximum allowable fee for your area.
Be consistent with your grace period. You can't let one owner regularly pay a week late, but charge late fees after 3 days for someone else.
Be reasonable. Extenuating circumstances come up from time to time. If someone has paid you consistently for a year but needs to pay late one month, it's okay to give them the benefit of the doubt.
Reward good behavior. A small acknowledgment that someone's paid on time for an entire year—a kind note, for example, or a $10 Starbucks card—can have a big impact.
Last, consider hiring a property manager to handle these responsibilities so you can focus on the things you enjoy. From enforcing policies to managing owner relationships, they'll take all kinds of responsibilities off your plate. Just click the button below to get free quotes from property managers in your area!