Ensuring your tenants are paying on time can be a tricky business, and it can be a bit of a nightmare when you have to start phoning or emailing to chase those missed payments - it’s a problem, and we hear you loud and clear.
When we set out to develop Reoli to help landlords with property management, we built it with the idea of simple rent collection at the heart of it. One of these simple methods is direct debit.
Traditionally, direct debit hasn’t been an area that many landlords have ventured into, and with good reason. But in February 2017, BACS changed how the Direct Debit Indemnity Claim (DDIC) is handled which makes it a more robust method of collecting payments. Many businesses, including us, use it for collecting funds.
Standing Orders
If you’ve been a self managed landlord for some time, or had a relationship with a letting agent, it’s likely you’ve come across standing orders and even given them a go. You may be lucky to not have experienced any problems, but there are a few obstacles that still make it a risk, including:
- Your tenant has to set it up with their bank to send the money
- There are often forms to fill in (either paper or online) - this can introduce errors
- There’s no way of knowing if it’s been paid unless you’re checking your bank statements
- There’s always a chance the forms are sent to the wrong branch.
Ask yourself this - if standing orders are really reliable, why don’t your electric or gas company ask you to set them up?
Are Direct Debits Any Better?
Rent collection is much simpler and automated by using direct debit. Reoli is proud to integrate with GoCardless, a leader in direct debit collection, to assist you with ensure your rent is collected on time. With it comes many benefits:
- Like a standing order, your tenant still sets it up, but using a pre-filled form linked to your account (no more missing money!)
- The costs are low - a new GoCardless account starts with costs at around 1% capped at £2, so a collection of £200 or even £2,000 will cost no more than £2.
- Automated - Reoli can request the rent when it’s due, and let you know when it has cleared
- If there’s a problem (e.g. lack of funds), you’re likely to know much sooner and rectify it quicker
- It gives you control of the rent and you’re not relying on your tenant. Introducing an increase? Easily done in a few clicks.
Turnaround
By the very nature of the direct debit system, payments can take a few days to process, but this depends on a few different things - whether it’s a new direct debit mandate, weekends, bank holidays, and so on. Typically, it can take around from 5-7 days to collect and clear funds:
If a Direct Debit mandate is already in place, payment is collected 2 working days after submission, can be considered 99% confirmed 3 working days after submission, and 100% confirmed after 4 working days.
If a Direct Debit mandate needs to be created, payment is collected 4 working days after submission, can be considered 99% confirmed 5 working days after submission, and 100% confirmed after 6 working days.
Source: GoCardless
Conclusion
Direct debit can not only speed up your rent collection, but reduce costs too - which is a big plus. There’s a potential to reduce your costs, the manual action and helps reduce missing payments too.