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.
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.
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:
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:
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).
3. Implement text-based reminders in addition to email notifications, as text messages tend to have higher open rates.
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 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:
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.
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.
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:
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:
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:
Delinquency can be embarrassing for tenants, so frame the conversation as a way to repair a problem. Shame is not an effective motivator. When tenants feel respected and understood, they are more likely to communicate openly and seek solutions rather than avoid payments altogether.
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.