Winds of Change: Why Landlords Should Move to a Direct Debit System

Today, in the UAE and across the GCC region, landlords, property management companies and letting agents predominately require tenants to pay rents with post-dated cheques twelve months, six months or even quarterly in advance. This method of payment has several inherent risks for landlords as well as having a negative impact on tenant’s cash flow at a time when tenants are trying to squeeze as much out of their income as possible. The current “market-forces” at play in the UAE are forcing landlords and property management companies to re-examine the value of taking advance post-dated cheques from tenants. The downward pressure on rents, together with salary cuts and job losses have tempered any potential rental increases with many tenants being forced to downsize and reduce household expenses. Landlords are being pushed into a situation where they have to reduce rents in order to retain tenants.

In the UAE, when it comes to paying for rent, landlords, property management companies and letting agents want rent to be paid through a series of post-dated cheques. Implicit in this is a whole spectrum of problems related to post-dated cheques, including lack of transparency, costs of handling and processing cheques, and the increasing likelihood of bounced cheques.  Additional challenges include manual banking as well as employing back office teams to manually reconcile each tenant’s cheque payment. This also creates errors, costs landlords and property management companies time, and requires them to hire a whole administration team to daily reconcile all rent payments banked.

In many Western countries, the use of post-dated cheques has been considerably reduced if not rightly removed from rent payments. Most rents can now be paid electronically and can be initiated by the landlord, property management company or the letting agent if they have a direct debit agreement to pull rental payments directly from a payers account or card. Many of these direct debit payment systems provide integration into the landlord’s and property management company’s software that allows for immediate daily reconciliation of all transactions. So, where landlords and property management companies had teams of staff whose job is to manually reconcile payments, it’s now completed within minutes. The illusion of cheques being secure as a payment method for rent is slowly evaporating (see “The Illusion of Post-Dated Cheques in the UAE”). Cheques have been in use for more than 350 years, but the tide has begun to turn as other forms of electronic payment bring us closer towards a cashless society. Cheques as an option for the payment of rent will soon be consigned to history in the UAE and across the GCC region!

Acquiring New Tenants

In the UAE, we have seen a progressive pivot from a landlords’ market to a tenants’ market and landlords are now having to discount their properties by 10% to 15% in order to get tenants into their properties, or run the risk of facing a long period with an empty rental unit with no rental income. With prospective tenants now having to balance their priorities, their pay cheques getting squeezed from all sides, prospective tenants want more flexibility than ever from their landlord, when it comes to renting.

Landlords must realise, that in today’s market, the more flexible they are with rent and rent payments the wider the choice of tenants is likely to be interested in renting their property. Offering prospective tenants, the option of paying their rent via monthly direct debit rather than requesting a series of posted-cheques will catch the eye of more and more tenants who are seeking a rental property, but who may struggle to put together a large upfront payment in time for the initial rental cheque payment. Having a direct debit payment option enables them to make affordable monthly payments once they are in the rental property.

Retaining Existing Tenants

Acquiring new tenants and retaining existing tenants are issues facing all landlords and property management companies today.  Both will concede that it is easier to retain an existing tenant than onboard a new one.

When considering a tenant’s request for a rent reduction, a landlord must assess its financial obligations and cash reserves. Some landlords may be able to grant temporary concessions without suffering significant financial harm, while others may struggle to meet their mortgage and other obligations as a result of a substantial reduction in rent payments.

Direct debit payments, as an alternative rent payment option helps address the cashflow issues of the tenant and the tenant retention problem of the landlord. Recently, we have seen numerous examples where tenants are more likely to stay in the rented facility, at the same or increased rent, when offered the option of monthly direct debit payments. Over the last few months, we’ve also seen an increasing number of landlords and property management companies of all sizes make the switch to collecting rent by direct debit and reconciliation systems.

Advantages of Collecting Rent via a Direct Debit and Reconciliation System

Direct debit rental payments can help landlords in several ways:

  1. Reduces vacant periods
  2. Reduces late payments
  3. Get paid on time, every time
  4. Improves cash flow
  5. Retain existing tenants
  6. Easier to acquire new tenant
  7. Reduces admin cost
  8. Increase rent easily
  9. Flexible
  10. Reduces payment failure
  11. Easy to setup and get started
  12. Simplifies reconciliation and more data control

There are numerous inefficiencies for landlords and property management companies collecting rental payments in the form of post-dated cheques. They currently rely on outdated manual payment processes. This is especially problematic for property management companies juggling a large portfolio of properties, collecting rental cheques and depositing them into the company’s bank account and wait for the cheques to clear. Finance departments then need to track incoming payments on a spreadsheet or CRM, match these payments with properties (especially challenging if the tenant doesn’t include a reference), and deduct any management fees before sending the final amount onto the landlord.

Collecting Rent on Time

Technology is so prevalent now that we can barely remember our lives without it, but setting up the collection and reconciliation of direct debit rent payments online is all thanks to new technologies in the UAE!

By setting up regular, direct debit rental payments with tenants through third party vendors, landlords and property management companies can feel reassured that rent payments will be delivered to their bank accounts on time, without having to chase it up.

This process has become even quicker and easier with the development of direct debit and reconciliation systems, meaning landlords and property management companies can access vital information while on the go.

Disadvantages of Collecting Rent via Post-Dated Cheques

  1. Inefficient and time-consuming. Finance departments need to spend several hours every day retrieving the posted dated cheques and cross referencing these cheques against their spread sheet or CRM in order to make the process work.
  2. Expensive. The need for a large team to handle the overly manual payment process.
  3. Prone to human error. Manual processes create significant opportunities for mistakes whether its tenants forgetting their reference number or an error made in-house.
  4. Slow. Manual payment processes take time as property management companies need to wait for their finance department to reconcile payments before sending rental payments to landlords.
  5. Bounced cheques. Longer processing periods means it takes longer to recognise missing payments and the need to chase payments.

Landlords should also note that regardless of whether the tenant has paid the lease upfront or not, the tenant is still entitled to cancel their Tenancy Contract (“Contract”) pursuant to the terms of the Contract by giving the required notice and being liable for any cancellation penalty. A significant risk arises when that penalty is paid and the landlord is required to refund the tenant the balance of the rental for the remainder of the Contract period if those funds have already been spent.

Today, a direct debit and reconciliation system for collecting rent payment can ease these headaches while seamlessly collecting and reconciling rental payments for landlords and property management companies. A direct debit system gives landlords and property management companies greater control over the tenant/user experience and speed of settlement. Landlords and property management companies can eliminate the hidden inefficiencies in their existing payment processes while retaining existing tenants and acquiring new tenants. Not only that, they can make payments their competitive advantage by streamlining and future proofing their finance function, and all while offering their tenants the best experience available.

LANDLORDS……it’s about having the right mindset to adapt to change and stay ahead of the curve in the rental market!

Thank you for your interest in Investing with Zink Pay

We will contact you shortly

In the meantime read our most popular articles

Thank you for your interest in partnering in Zink Pay

We will contact you shortly

In the meantime read our most popular articles

You’re all set!

Thank you for pre-registering with Zink Pay

Give us just a couple more weeks to finish tweaking the platform for your
best experience. Once the platform is fully launched, expect an e-mail with instructions for the next steps.

In the meantime read our most popular articles