Exploring e-Payments for Your Property
By Mike Corbera
Welcome
Greetings Readers! This is the first article of an ongoing series on technology and how it impacts your property management business. The goal of this recurring column will be to explore new technologies, products and services that can increase efficiency and profits – ultimately helping to improve your business. We will also explore the tenant perspective on new technologies to help understand and improve the customer experience in your property business. Some anticipated topics will include: Social Media, Internet Services, and Property Management Software. I encourage all readers to submit ideas or suggestions for future topics to me at mcorbera@revopayments.com. By way of brief background, I am a former business lawyer (don’t hold it against me) turned technology geek and internet entrepreneur. Over the past 15 years I have focused on building companies that focus on using the internet and other technologies to grow and improve the way organizations operate. I am currently CEO at Revo Payments, a company that builds software for a variety of industries, including property management. I look forward to sharing information and establishing a forum for learning together. So without further ado, let’s get started with our first topic: Exploring e-Payments for Your Property.
Just as in other competitive industries, property management firms employ new technologies with the goal of saving money, increasing cash flow, and improving customer service. Forward-thinking property management firms have embraced electronic payment systems for security deposits, special fees, and rent payments with great success. The benefits are many, including: faster cash flow, lower payment handling expenses, increased reporting accuracy, reduced delinquencies, and happier customers.
Accelerate Your Cashflow and Reduce Delinquencies
The traditional “check by mail” or “lock box” systems for collecting tenant payments are filled with inefficiencies that result in volatile cash flow and delays in liquidity. This is true for any business, but in the case of property management it is an issue that is most pressing because PMs tend to receive payments in a “lumpy” fashion – with most payments due on the same date. Thus, your firm may expect almost all of your monthly revenue on a specific date (i.e. the 1st of the month). However, the reality is that the process can take several days for that payment to be in your bank: Tenant mails payment (1 day), mail time (2-3 days), lockbox or office receives and opens payment (1-2 days), payments recorded (1 day), and payments bundled and deposited to bank (1 day). All told, many PMs with due dates on the 1st actually have an average collection date closer to the 5th or 6th of that month – or later if weekends occur. This means that moving (or “accelerating”) the day on which that bulk of funds are received will have a substantial impact on cash flow. As business owners, most of us intuitively know that it’s better to get paid today than tomorrow. The accountants and finance folks call this “time value of money” – which, depending on the size of your portfolio and interest rates, can represent thousands of dollars a year (or each month for really large portfolios). A related by-product of online payments is that delinquencies will be reduced. Pamela Day is Managing Director at Crimson Holdings, a Los Angeles-based developer and property manager. After implementing e-payments she found: “Not only do we get paid faster, but now we require all tenants to maintain ACH and credit card information on file. When a payment is late, we are previously authorized in the lease agreement to debit the tenant account. This has reduced our delinquencies dramatically.”
Lower Your Costs (and Improve Your Profits)
Traditionally, rent week is considered “down time” when staff is focused on sorting, organizing, depositing, reporting, and reconciling rent payments that come in the mail. By automating this process, the amount of staff time required is dramatically reduced – freeing employees to focus on other things, or allowing you to streamline the team and reduce your labor costs. The US Treasury Department estimates that it costs up to $4 to handle each paper check (not including return fees and bank charges). Likewise, many lockbox services cost $1 per item (not including exceptions, such as checks mailed with no coupon). Importantly, these figures do not include the cost of your staff following up by phone with late tenants or sending late payment notices. Related to this, I suggest caution that some bank-sponsored “bill pay” services actually send you a paper check (even if initiated online by the bank customer) – ultimately causing you greater inefficiency since these bank-issued checks arrive with no coupon and are hard to track. In contrast, e-payments that are centralized at your firm offer a clear cost savings when compared to these figures. In some cases it is possible to spend less than $1 per e-payment. Moreover, while online options will not make late payments completely disappear; there is evidence to suggest that the combination of auto-payments and offering multiple payment options significantly reduces the amount of late payments.
Happier Tenants
Every business depends on its customers for its success. But it is rare to find a product or service that makes customers happy at the same time that it improves your business. Over the last 20 years (and accelerating in the last 5), consumers have embraced technology in general, and online payments in particular. Today consumers and businesses prefer to pay online because it is more convenient for them. Industry statistics make it clear that online payments are part of the new social and business landscape. Visa recently reported a 158% increase in its card use for rent payments over the previous year, according to Jim Eitler, Visa’s vice president for client services. Jupiter Research’s Online Bill Viewing and Payment Forecast estimates that more than 90 percent of U.S. households and businesses manage daily payment transactions online. I can certainly say that my personal experience at our organization supports this shift. My company employs a number of young professionals. I recently took an informal survey to ask how many of them use paper checks and was surprised when many responded that they rarely use a paper checkbook. While this may not (yet) be true of your corporate tenants; rest assured it is a leading indicator of a fundamental shift in our society. Driving the demand for online tenant payments are added convenience, better visibility, increased broadband penetration, environmental concerns, and the ability to choose how to pay monthly fees. Based on the clear and strong tenant preference, many property management companies have seized the opportunity to offer electronic payments as a competitive advantage over those not offering an e-payment service.
Conclusion
In light of these multiple benefits of e-payments, it seems obvious that every PM should consider implementing online payments. By using a customized e-payments solution properties and managers control every aspect of the collection process. With the reduction of deposit slips that need to be completed and the reduction of time consuming data entry and posting, property managers are now free to devote their time and resources towards maintaining profitability for their portfolio. Perhaps most important, online payments represent a market-driven service that can set your firm apart and make existing tenants more satisfied.
In the past decade the real-estate market has been one of the last remaining industries to implement electronic payments. This was mostly due to the lack of battle tested platforms and lack of providers with expertise in the real-estate industry. Today these platforms offer efficient, flexible, and cost effective solutions that return your investment many times over. As mentioned previously, it’s truly rare to find a business model that benefits everyone involved, but e-commerce as applied to the property management industry is one of those cases.
Feedback, ideas, or questions? Email me at mcorbera@revopayments.com
