Collection agencies can assist landlords in recovering unpaid rent. While these services can be valuable, it’s essential to know when and how to use them effectively. Sometimes even reliable tenants miss payments, which can present challenges. To prepare, learn when engaging a collection agency makes sense, how to use their services strategically, and ways to prevent payment issues in the first place.
5 Key Scenarios for Using a Collection Agency to Recover Rent
Turning to a collection agency is often the right move after all other strategies have failed. While success isn’t guaranteed, these agencies can significantly improve your chances of recovering unpaid rent. Here are key situations where a collection agency may be needed:
1. The tenant vacated without paying rent
When a tenant moves out leaving overdue rent unpaid, tracking them down can be difficult. Collection agencies specialize in locating former tenants and recovering what’s owed, including associated late fees.
2. Repeated collection attempts have failed
If your efforts to collect rent, such as sending reminders or making phone calls, don’t work, a collection agency can apply professional techniques to recover the debt.
3. The outstanding amount is significant
Large unpaid balances can justify the cost of hiring a collection agency. These professionals are skilled in recovering substantial amounts of money and can help you recoup a portion of what’s owed.
4. The tenant is unresponsive
When tenants ignore your calls, emails, or letters, a collection agency can step in. They have resources to contact tenants through various channels or escalate the matter legally if needed.
5. Legal action is required
If legal proceedings become necessary for rent recovery, many collection agencies offer assistance. They often have in-house legal expertise or partnerships with attorneys to manage court filings and judgments.
When Should You Hire a Collection Agency?
There’s no fixed timeline, but here is a general guideline to follow:
- Immediately: If your tenant has been evicted.
- After 30 days: If your tenant finished the lease with an unresolved balance (missing a month of rent, lost the key, unpaid property damages, etc.)
- After 60 days: If your tenant breaks the lease without negotiation or fails to fulfill their agreement.
5 Steps to Use a Collection Agency Effectively
Working with a collection agency should be straightforward, but selecting the right one and providing proper documentation can make all the difference. Here’s how to get started:
1. Review the rental agreement
Examine your lease for key clauses detailing rent due dates, penalties for nonpayment, and other terms. This serves as a critical document for dispute resolution and supporting your case.
2. Attempt to collect the rent
Before involving a third party, try to collect the rental payment yourself. Send official notices, emails, and certified letters documenting the overdue rent and your collection efforts. Keep records of all correspondence as evidence.
3. Choose a specialized collection agency
Look for an agency that specializes in rent collection. Compare their fees, service terms, and success rates. Negotiate for the best price and ensure the agency matches your specific needs.
4. Provide necessary documentation
Ensure all necessary documents are ready. These might include communication records, tenant contact details, past-due rent amounts, and lease agreements. Some agencies may also request the tenant's SSN or driver’s license for identification.
5. Report nonpayment to Credit Bureaus
Many collection agencies assist in reporting unpaid rent to credit bureaus. By doing so, you can impact the tenant’s credit score and potentially motivate them to settle their balance to repair their financial reputation.
Avoid These Rent Collection Mistakes
If you prefer to recover rent yourself before engaging a collection agency, here are what to avoid:
- Self-help evictions: Forcibly evicting a tenant without proper legal procedures is illegal in most states.
- Aggressive behavior: avoid actions like removing doors, shutting off utilities, or engaging in harassment.
- Harassment: Repeatedly calling or showing up unannounced could lead to legal troubles.
- Calling at odd hours: Only contact your tenants during standard business hours (8 a.m.–5 p.m.).
- Unlawful notices: Always follow state and local laws when issuing notices to tenants.
- Overcommunication: Excessive calls or emails may appear unprofessional or harassing.
Tips to Prevent Rent Collection Issues
Preventative measures can help minimize payment problems before they arise. While not foolproof, the following strategies can reduce risks.
Screen tenants thoroughly
Conduct comprehensive background and credit checks. Look for a history of timely payments and consider requesting additional documents for added confidence. Tools, such as those offered by Apartments.com, can streamline the screening process by providing criminal, credit, and eviction reports through partnerships like TransUnion.
Offer multiple payment methods
Make rent payments easy for tenants by providing a range of methods, such as:
- Online payment portal
- Money payment applications (Cash App, Venmo, Zelle, etc.)
- Credit or debit cards
- Bank drafts or checks
- Money orders or cash
Clearly outline these options in your lease agreement to avoid confusion.
Implement a clear rent collection policy
Your lease should include a detailed rent collection policy, covering::
- Payment amounts and due dates
- Grace periods
- Late fees and other penalties
- Partial payments
- Payment options
Hiring a collection agency can simplify recovering unpaid rent, especially when tenants are unresponsive or owe significant amounts. With the right preparation and careful choice of agency, you can minimize stress and maximize your chances of success. By screening tenants thoroughly, offering flexible payment options, and enforcing clear policies, you can also reduce the likelihood of rent collection issues in the future.
Frequently Asked Questions
Does unpaid rent sent to collections affect a tenant’s credit?
Yes, it can significantly impact their credit score, often lowering it for years. This can make future financial activities, like leasing or getting loans, more difficult.
How long should I wait before using a collection agency?
Typically, a wait of 60 to 90 days post-due date is common, but the exact time frame depends on the terms outlined in your lease agreement.
What are the costs of hiring a collection agency?
Most agencies charge a contingency fee, meaning they only get paid if they recover the debt. Rates vary depending on the amount owed and the complexity of recovery.
Originally published on June 16, 2022
