Recovering delinquent tenant debt is a challenge for many property managers. On average, nationwide recovery rates tend to be low, but a variety of factors impact results. It is important to establish realistic expectations and be conscious of factors that may affect a community’s recovery rates. For example, landlords in debtor-friendly states or typically transient areas may struggle more. Class A properties that only accept residents with high incomes and high credit scores may have little post move-out debt to worry about.

In any case, steps can be taken to reduce a community’s delinquent tenant debt and increase the odds of successful recovery. These efforts should improve revenue by recovering more receivables and may even reduce the timeframe to complete recovery.

G&G Properties, a Tennessee-based company, is now using an integrated solution with a national agency and consistent policies to store resident information online and turn over accounts faster, instead of maintaining collections records offline and using a local agency with limited reach.

It has seen its ability to collect from residents who commonly move out of state after graduation greatly improve.

Step 1. Implement Consistent Policies for All Delinquent Accounts

Accounts receivable strategy should include systematic reminders via calls, letters, or email and text messages for past due accounts. Consistently charge reasonable late fees to encourage delinquent tenants to pay earlier instead of later. If these efforts fail, have a process to turn recovery over to a third-party collections agency or to pursue legal action immediately. Collections agencies report bad debts to the three major credit bureaus, giving residents who moved out a greater incentive to pay. Credit reporting also makes the issue of recurrent delinquent tenants more transparent among the property management community.

The important thing is to follow a consistent policy for all accounts. Most problems occur when special cases are made to not adhere to internal best practices. Both residents and employees should understand these policies in advance to help manage expectations and ensure compliance.

Step 2. Accurate and Complete Documentation

In collaboration with consistent policies, document everything for both the property and its residents. Include resident policies in the lease, have lawyers review the lease to ensure it is legally binding in the given state and make sure that all appropriate parties have signed.

During the application process, collect comprehensive information, including emergency contacts and employer information. This information will greatly increase the likelihood that the owner or third-party collector can locate the tenant after they have moved out. Being diligent about gathering information about the resident and maintaining documentation will increase the chances and speed of recovery and reduce the amount of time spent looking for supporting documentation in case of a dispute.

Technology like AppFolio can help store all relevant information online. A community can maintain an efficient, electronic record of applications, leases, relevant correspondence, and both move-in and move-out inspections, detailing damages and cleaning charges in one location.

Additionally, an accurate, detailed move-out ledger is required to substantiate debt for collection or legal efforts. At the same time, avoid overstating current debt by accelerating rent charges to the end of the lease or including numerous extra charges. This will only reduce the chances of collecting the debt. Consider what is permitted under state law and exercise rights only as they are best suited to maximize recovery.

Step 3. Streamline Debt Collections With Technology

If a community’s property management software is already streamlined with an online system to collect payments and maintain records, third-party collection services that utilize data exchange programs to integrate with the software can be found. Technology integration makes a community’s process more seamless and reduces the time and burden of managing collection accounts.

Step 4. Move Rapidly to Keep Accounts Receivables From Aging

Integration also helps to turn over accounts faster, resulting in higher returns. The American Collectors Association, or ACA, finds that collecting debt becomes 16 percent less likely for every 30 days the account remains unworked. Obviously, past tenants become harder to locate as time passes. Also, past tenants tend to become more resistant to paying the longer it’s been since they’ve been contacted about the debt. Because the likelihood of recovery declines as time passes, it's better to turn records over to collections sooner, rather than later, to maximize the odds of recovery. Once all reasonable internal collection efforts are complete, accounts should be referred immediately.

Step 5. Don’t Hinder Collections Efforts

Once the uncollected debt has been outsourced to a collection agency, refrain from communicating with the past tenant about it. Former residents placed in collections may try to contact the community to discuss the account. However, it is recommended that the community politely tell them that they are no longer managing the debt--they now need to communicate with the collection agency. Also, notify the collection agency of any payments received directly and do not discuss any future arrangements with the past tenant. Certainly, considering a payment plan or settlement for less than what is owed may increase overall recovery by offering the past tenant additional motivation to pay, but should be handled through the collection agency with the community’s consent.

Step 6. Track, Analyze, and Tune Your Collection Strategy

Management and property owners need to have access to reports and data that can help them understand how well their collection strategy is working, which accounts trend toward being collected and what steps in the process may need to change to improve results. Again, a technology-driven approach can empower management to better analyze their collection efforts by providing visibility and reporting on collections efforts and recovery.

Maximizing A Property’s Recovery Rates

Recovering delinquent tenant debt will always be a challenge for some properties. As a property manager, it’s important to focus collections efforts on factors under the community’s control. Consistent policies acting upon accounts receivables can reduce bad debt balances. Gathering information on residents as a preventative measure, and keeping complete and accurate documentation will prevent delays in recovery. Additionally, technology can speed the action needed to place accounts, improve recovery and reduce workload. Finally, these same tools can help a community monitor progress and tune processes for the best results.  - Nat Kunes, AppFolio