Recover More Revenue:  Becoming A Good Custodian Of Collections

Delinquent tenants are an inevitable part of life for self-storage operators. Despite your best efforts, there will always be customers who fall behind on their payments. And while the collections process can be laborious, it’s a necessary endeavor to maintain the health of your business. 

One way to ensure you spend less time on collections is to get better at collections. By setting clear policies, refining your communication, and applying automation in the right moments, you can optimize how you handle delinquent accounts and improve your success rate. 

A Better Collections Process Pays Off 

On any given day, there’s likely a laundry list of things to focus on at your facility. If you already have a collections process in place, why should you focus on improving it? Here are three good reasons: 

1. Recoup Forecasted Revenue

Self-storage is a numbers game, and forecasting future revenue enables operators to prepare for the future. 

Losing revenue through delinquent tenants upends your well-laid plans. It renders your forecast inaccurate because a certain percentage of customers fail to pay. A better collections process means a more reliably profitable business. 

2. Avoid Going To Auction

Going to auction is almost never an appealing option. It’s time consuming and expensive. What’s more, operators rarely recoup much ROI for all their trouble. 

Suffice it to say, avoiding auctions is a smart financial move, and improving collections is the primary way to do so. 

3. Reduce Customer Churn

There’s an old adage in marketing that still applies today: It’s more expensive to gain a new customer than it is to keep a current one. 

This logic has been muddied by the churn and burn tactics of REITs; a small amount of churn can be acceptable in exchange for higher in-place rents, but investing in customer retention is absolutely worthwhile in the long term. 

You must also consider the reputation of your business in the context of churn. A thoughtful collections process can save tenant relationships and ensure they remain satisfied customers. 

Strategies For Enhancing Collections 

Focus On The Pre-Delinquency Payments 

The best collections process is a billing workflow that prevents tenants from going delinquent. You have a lot of freedom to structure normal billing processes as you see fit, but once a tenant goes into delinquency, state regulations come into play that limit how you can contact tenants about payment. Therefore, your strategy should be to ensure as many tenants pay on time as humanly possible. A few tried-and-true ways to do that are discussed in the remaining sections of this article. 

Establish Clear Policies And Communication 

Having a well-defined rental agreement that clearly outlines payment terms, late fees, and the consequences of non-payment is essential. Ensure tenants understand these policies upfront by providing them with written documentation and verbal explanations upon signing their lease. Best practices include: 

• Clearly communicate payment deadlines and accepted payment methods. 
• Outline late-fee structures and escalation policies. 
• Ensure tenants acknowledge and sign a detailed delinquency policy. 
• Use multiple communication channels, such as email, text messages, and phone calls, to remind tenants about upcoming or past-due payments. 
• Provide tenants with a copy of frequently asked questions regarding payments and collections. 
• Offer an easy-to-access online portal where tenants can review their payment history and account status. 

Utilize Autopay 

Signing tenants up for autopay is a surefire way to reduce delinquency. There’s still the chance that a customer’s payment information could change, but implementing automated payments will ensure more payments arrive on schedule. To get tenants to sign up: 

• Set autopay as a requirement for your facility. Make it the standard method for payment. 
• Give tenants some flexibility for when they want to pay. If a certain part of the month is better, let them choose that date. 
• If someone still won’t sign up, give them the option for manual payment, but be clear about your late payment policies. 

Automate Billing Reminders 

Like autopay, automation is your friend when it comes to billing communication. Sending reminders one week and one day before payment is due can work wonders for ensuring people pay on time. Here are three implementation strategies: 

1. Use property management software to send automated invoices and payment reminders. 

2. Set up a sequence of reminders (gentle reminders before the due date, firm notifications after the due date, and escalation notices as necessary). 

Improving Your Collections Success Rate 

Despite your best efforts, there will likely still be accounts that fall into delinquency. It’s not ideal, but it’s almost impossible to avoid. However, you’ll be able to recover revenue and maintain your customer relationships with an optimized process. 

Act Quickly 

Act swiftly when delinquencies arise to prevent prolonged unpaid balances. Create a timeline for follow-ups and enforcement actions to maintain consistency and provide transparent communication. The following is a suggested timeline: 

• 1 to 5 days past due - Send a friendly reminder via text or email. 
• 6 to 15 days past due - Send a formal notice with late fees applied. 
• 16 to 30 days past due - Send a final warning before lien proceedings begin. 
• 30-plus days past due - Initiate the lien process per state laws and facility policies. 
  

To ensure efficiency, create a standardized script for customer service representatives to follow when making collection calls. Staff should remain professional, firm, and empathetic, providing tenants with possible solutions while emphasizing the importance of timely payment. 

Remove Payment Barriers 

Sending an email or text with a link to pay is only half of the battle. If the payment process is still too complicated, tenants will drop off. The ease with which your customers can pay is a massive part of resolving delinquent payments. To design a better payment flow: 

1. Use software that allows tenants to save their passwords.

People often forget their login info, which makes the process much more cumbersome. 

2. Make sure your payment experience is optimized for mobile. Most tenants will click an email or text link from their phone, so optimize for that experience. 

The fewer barriers customers encounter during the payment process, the more likely they are to follow through. 

Last Resort 

When all collection efforts fail, follow the legal procedures for enforcing a lien sale. Ensure full compliance with state laws and regulations governing self-storage auctions. It’s wise to have a legal professional review your lien process to stay on the right side of the law. Key considerations include: 

• Provide proper notifications as required by law. 
• Maintain records of all communications and payment attempts. 
• Consider working with a professional auction service to manage the process. 
• Notify tenants in advance of lien enforcement and give them a final opportunity to settle their debt before losing their stored belongings. 

Evaluate And Improve  

Regularly assess the effectiveness of your collections process and adjust your approach based on performance data. Search for insights, like the channel (text, email, and phone) and the time of day with the best response rates. Apply those learnings across all your outreach. Here are five monitoring strategies: 

• Track delinquency rates and recovery percentages. 
• Identify common reasons for non-payment and address them proactively. 
• Gather feedback from tenants to improve communication and payment processes. 
• Conduct internal audits to identify weaknesses in the collections workflow. 
• Train staff regularly on updated best practices for managing delinquent accounts. 
• Periodic training sessions for staff can help refine collection techniques, ensuring that employees handle delinquent tenants professionally and effectively. 

Maintain Positive Messaging 

While enforcing collections is necessary, it is equally important to maintain a positive relationship with tenants. Be firm but fair, and always stay professional. Remember that the goal is to correct the delinquent account and keep the tenant as a long-term customer. Strategies for maintaining good relations include: 

• Use respectful and non-threatening language in all correspondence regarding delinquent accounts. 
• Offer proactive solutions instead of immediate penalties. 
• Show empathy toward tenants facing financial difficulties while maintaining firm policies. 
• Encourage tenants to communicate if they anticipate payment issues.

By implementing clear policies, leveraging automation, and maintaining a structured collections approach, self-storage operators can minimize the impact of delinquent accounts while maintaining positive tenant relationships. Consistency, transparency, and legal compliance form the foundation of any effective collections strategy. 

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Zach Watson is the content manager at White Label Storage, a performance-focused self-storage management company. He lives in New Orleans, where he drinks a lot of coffee and eats a lot of Cajun food.