Self-storage is a relatively simply business model, and without cash coming in there’s nothing to go out. As a result, collecting your rent is key. But many storage buyers and owners do not use good business practices in this basic – but vital – arena. In this Self-Storage University podcast we’re going to drill down on the right and wrong way to collect rent.
Episode 52: The Right And Wrong Way To Collect Rent Transcript
There's no better feeling than having money in the bank, but if you don't collect that money, you won't have any. This is Frank Rolfe with the Self Storage University Podcast. We're talking about the right and wrong way to collect rent. Let's start off with the basic premise, which is true, most people want to pay. Many people think the reverse, but studies have shown the average American never likes to not pay their bills, who would? It's embarrassing, it causes stress. So don't go into collections with the opinion, the customer really is trying not to pay you, that you're in some kind of a game, some kind of a sport where you wanna get money and they don't wanna give it to you. That is seldom the case. The truth is that most Americans hate not paying their bills. So, if people hate not paying their bills then why don't they pay? Well, the next thing we all have to admit is that many people get into cashflow struggles at some point. It's not hard in our endlessly crazy America to imagine the people make commitments based on a set of reality, and now the reality has shifted.
Look at the price of gas, look at the price of anything in America right now. There's many, many reasons why someone could have a problem. Maybe their car broke down, maybe they had a change of job, maybe they had a medical emergency, all these many factors can cause people who really are hard working and like to pay to simply not have the money on hand to do so. Because of this, if we assume the people really wanna pay and we assume that people have financial problems occasionally, then first thing is, you need to be high on the priority list, because when people have income shortages, something has to go, and you wanna be on the top of the list. Now, you won't be on the top of the list, you'll never be on the top of the list, clearly the person's mortgage, their housing would probably come first, and their automobile would probably come second, but nevertheless, you're holding a lot of their goods that they worked hard to get and to buy, and that they store in your storage. And so, you should be on their radar screen if you play your cards right.
Because your key is even if there are other bills that don't get paid, you want it to be you. And to really get there, if you want people to want to pay you, you cannot approach it from an adversarial perspective. It cannot be that you and the customer are at odds with each other, that isn't smart. Because now you set a framework why they basically feel rewarded for not paying you, because you're the enemy. That isn't what you do. So then, how do you competently collect rent? Well, the first thing you do is, you need to reach out to the customer to find out what the problem is. If we assume they want to pay, then why haven't they paid? Over the years, you'll get lots of different reasons, people who will simply say, "I forgot, I forgot to pay you, it's entirely my fault. I'll send it today." Or people have had some kind of financial hardship. But you gotta reach out and find out what the story is.
And when you reach out to get the story, it's very important that you be approachable, you cannot be mean or negative. Now, in much of America today, people aren't very friendly. I've never seen such a lack of customer service in everything today, whether you go to a store, call a customer service line, try and get your air ticket changed, rudeness is the normal catch phrase today, but that's not smart, from a self-storage collections perspective. You wanna be the good guy. And you're simply contacting the person to find out what is the problem, but not in a mean way, more out of curiosity. You're just wondering what's happening and how can I help you, how can I help you make the payment? And listen to people when they say, Well, here's what's happened, and here's my solution. I can't pay you today, but I can go ahead and pay you two months worth in three weeks. Work with people as you can.
Now you'll say, "Well, gosh, darn it, my plan was, I get all the rent on the first of the month." Well, okay, that was your plan, and that was your customer's plan, but sometimes plans don't work out. Eisenhower once said that no plan survives first engagement, which meant in World War II, the reality of war was such that the plans rarely worked. So understand that and accept that and try and work with the customer and find out what you can do to make this have a happy ending. Also, it's very important that you take credit cards. Some of the more old-fashioned mom and pop facilities often don't take credit cards. That's a very bad idea, 'cause often if someone really wants to pay you, but they don't have the money in their checking account, an alternative is just to pay you with a credit card. So, if that's the problem, well, then that's solved, we can go ahead and take your credit card.
And also, don't think that whatever you do with that customer to solve that problem is setting the standard with the others. Most self-storage customers have no idea who their fellow self-storage users are. They don't know who's next door to them at all. It isn't like they're all going to sit around and talk and say, "Oh yeah, well, you know, I paid two weeks late." So, don't be feeling like you're gonna hurt your business by working with people, it's just good business to work with people. Now, some other considerations that you need to know if you wanna collect rent the right way, is you have to understand all of your state, local statutes on collections. There's federal law, there can be state law. A lot of these all were formed under what's called the Fair Debt Collection Practices Act. You need to understand all the things you can and cannot do to collect money, because the last thing you wanna do is become on the wrong side of those requirements, which then opens you up to liability or litigation.
Also, you wanna always build a paper trail with all of your customers regarding payment of rent. If you ever had to go to court for any reason, judges always prefer the person who has the paper trail. And they don't like the person who does not. Also, don't forget that having a late fee of some type is one way to raise the bar to give you greater priority. A lot of customers, when looking at their bells, they look and see what the penalty is if they don't pay on time, and they'll often pay the bills in descending order of who has the highest late fee to who has no late fee at all. You wanna be on that list. Now, will you waive the late fee if needed? Of course, you will, the late fee is not part of your revenue assumption. The late fee is just there as a driver to make people wanna pay timely. But that doesn't mean that you have to always get the late fee.
Don't forget that if you collect one month's rent, but yet you lose the customer, you have failed. You've made a terrible error. How long will that unit be open until you get the next customer? What do you have to do to clean it out? Market it. Commissions, if you're paying a commission. What do all those things add up to? The truth is, you would have been far better off working with that customer to get the money based on their ability with whatever life event has occurred, than being the tough-nosed person to push them out the door. Alright, you succeeded. You may have collected that money and now they're gone, but they're going to reward you probably with a really bad social media review at a time when most Americans make most of their decisions based on social media. Not to mention the fact you've now got an empty unit.
0:08:49.8 Speaker 1: And if only you had been more approachable and more friendly and more reasonable in your collections, that would not have occurred. Finally, forget Storage Wars or anyone telling you of the wonders of auctioning that unit off, that is not how the real world works. You never get big prices and you're gonna be fraught full of worry that you did the process properly, and now you've, again, lost a customer. The key to success in storages is you wanna keep the customers, you wanna get them to all pay every month. But you have to be willing to bend over backwards and work with the customer when there is a problem in paying. They wanna pay you as much as you wanna get paid, but you have to work with them to make that possible. This is Frank Rolfe, the Self Storage University podcast. I hope you enjoyed this. Talk to you again soon.