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Cash rent or online payments? A list of pros and cons

Accounting & Bookkeeping

When you’re chasing down a late rent payment, it might sometimes feel like it won’t matter what form it comes in: you just need to deposit the money as soon as possible.

But the truth is that it does matter. And, while cash might be quick, it’s generally a bad idea to accept rent this way, for several reasons:

  • It’s easy to lose. If you drop your deposit on the way to the bank, there’s no way to get that money bank. Checks can be cancelled and rewritten, money orders can be reissued after 60 days usually. But lost cash is gone.
  • It’s easier to steal. The majority of leasing and property management staff are honest and don’t steal money. But there are exceptions, and there’s no reason to make it easy for them.
  • It’s a hallmark of illegal activity. Many gainfully employed people make the majority of their money in cash: any person who accepts tips as a part of their paycheck, for example. But, there are risks: James “Whitey” Bulger famously hid out in his Santa Monica apartment for 15 years by paying his rent in cash.

Of course, there are exceptions. But for the most part, property managers and landlords are much better off collecting lower-risk forms of payment. Check out some of the most popular methods below, and their pros and cons.

In-person debit/credit payments

Nearly everyone has a debit card these days, but payment processing fees for them can be as high as 3%. Square, Inc., a popular credit card payment service, charges 2.75% percent per transaction, but if you key the card in instead of swiping, the fee goes up to 3.5%, plus $0.15 per transaction.

That means a $1,000 rent payment may cost you between $25 and $35 in fees, making it prohibitively expensive compared to other forms of payment. That is, of course, unless you charge a “convenience fee” to offset your costs (which may be illegal in your state).

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There are also some risks to consider: there are a number of scenarios in which a tenant may dispute a credit card charge, making you responsible for the chargeback. And, while most processors back their clients up to a reasonable amount, usually this is nowhere near the average rent payment. Square, Inc., for example, backs its merchants, but only up to $250 per month.

But the benefits? They may far outweigh the risks. As mentioned above, accepting cash is risky business, but the convenience of credit cards reduces late payments and is more secure than cash transactions.

Furthermore, it’s fairly easy to process a payment with a debit card in person. All you need is a credit card terminal, printer, and PIN pad in your office. Transactions cost between $0.25 and $0.50 per transaction, no matter how large the amount. You’ll see the money in your account in 1-2 business days.

Online payment options

  • PayPal: Most people have PayPal accounts these days, so it’s very convenient for electronic payments. However, fees are higher than credit card payments, especially for business charges. And, you still run the risk of chargebacks like with credit/debit cards.
  • Money orders/cashier’s checks: While they’re not incredibly convenient for tenants, they reduce the risk of bounced checks and NSF charges for property managers and landlords. One big drawback is similar to cash: money orders can be lost. And if the tenant loses it before it gets to you, and they can’t afford another one, you’re out the money.
  • Electronic debits: ACH payments are both cost-efficient and convenient. Once your tenant sets up a recurring transfer, you’ll see the money in your account on time every month. And, it may only cost you a few dollars per transaction. One drawback is that if there’s not enough money in the account to cover it, the payment will fail (similar to paper checks).

There are so many vendors that will provide convenient payment options—your property management software may include this for a minimal fee, for example. Within your software, your may be able to set up recurring payments, accept late and convenience fees electronically, and support money order, cash, or check payments too.

Jason Van Steenwyk

Jason is a freelance writer and editor, as well as an avid fiddler. His articles have been published in a number of real estate publications including Wealth and Retirement Planner and Bankrate.com. He lives in Fort Lauderdale, FL with his cat, Sasha, and an unknown number of musical instruments.

  • Joshua Jensen

    Nice article. Many of my tenants don’t know what a checking account is, and ONLY pay in cash. It would helpful for low-income housing landlords such as myself if Buildium were to partner with a cash payment outfit such at MoneyGram or PayNearMe. Is this something that might be in the works?

    • Buildium

      Hi Joshua –

      Thanks for the feedback! While this is not something that is currently planned, we encourage you to vote for this feature request using our UserVoice tool. In the app, navigate to Help & Support > Suggest a feature. If you type “PayNearMe” in the Search bar, you will see that this request has 69 votes. Feel free to give it a few more! (You get 15 votes per month.) We prioritize product and feature requests based on this feedback.

      Thank you!

      • skip21al

        I’m looking for a new software and if Buildium integrated Moneygram then I’d be signing up right now.