Improving Collection Rates: Valuable Tips from Industry Experts
by Jerry LaMartina
Self-storage facility operators have a long to-do list to keep up with, including facility maintenance and upgrades, safety and security, reconciliation of what’s actually rented with what management software shows, and rental agreements, among other items.
Another task, a big one that can threaten the others if it’s allowed to get out of hand, is collections. Therefore, this article offers some tips from six industry experts on how to improve collection rates and avoid lien sales.
From The Get-Go
Sara Walsh, payroll and training coordinator for Pogoda Companies, a self-storage management and brokerage company based in Farmington Hills, Mich., notes that communication is crucial to improving collection rates. Self-storage customers arrive by various means, including the web, phone, walk-ins, referrals, and returning customers. Each one results “in a conversation about you and your site,” says Walsh.
It’s important to clarify up front for the customer the details on due dates, dates for late fees and other fees, grace periods, and expectations. For the best results, clearly explain late fees and use a reasonable late-fee structure. Walsh suggests standardizing the leasing process and procedures. “With this standard in place regardless of who the customer talks to, at any site in the company, they will get the same consistent message and limit any and all confusion of dates and fees,” says Walsh.
Todd Amsdell, president and CEO of Amsdell Companies, based in Cleveland, Ohio, a privately-owned real estate company that specializes in construction, development and management of business parks, industrial parks and related commercial real estate, including self-storage facilities under the Compass Self Storage brand, believes that delinquency “starts with most tenants who don’t think they’ll be there that long”. Like Walsh, he states that managers should begin the collection process when the lease is signed by clarifying both parties’ obligations.
“The bottom line is being vigilant from day one,” says Amsdell. “Don’t start off on a negative, but make sure everybody knows what the obligations are.”
Obviously, the most important thing is to avoid delinquency in the first place, and autopay helps achieve that. The best time to sign up a tenant for autopay is when they are signing a new rental agreement. “The number one thing with getting all this to happen is getting tenants signed up on autopay,” Amsdell adds. “Most of the problems then vanish. It’s rare that you have to collect because accounts on file are in the red.”
According to Ann Parham, CEO of The Parham Group, based in Bulverde, Texas, which handles facility management consulting, new-store startups, employee and owner training, marketing, product sales and services, and independent auditing, every tenant should be encouraged to use autopay. An automatic payment system is convenient for customers and self-storage facilities alike, since the monthly fees are withdrawn on the same day each month. However, managers would need to follow up promptly if a payment is declined.
“We promote our automatic payments within our customers as this is proven to help minimize delinquency rates,” says Jorge Saca, vice president of operations for Westport Properties, Inc., based in Irvine, Calif., which owns and manages 133 properties in 15 states, mostly under its US Storage Centers flagship brand.
A few days or a week after the lease has been signed, Walsh advises self-storage managers to make a welcome call to thank customers for choosing their facility. This will verify the customer’s correct phone number and gives managers a chance to answer any questions they might have, which promotes trust. She adds that managers could inquire as to whether the payment due date is convenient for the tenant. If possible, the manager may consider changing the due date to ensure on-time payments.
Donald Jones, owner of Donald Jones Consulting & Service LLC, based in Ft. Worth, Texas, which provides a range of services to self-storage customers and business owners, concurs with Walsh that collections start at move-in. Managers need to verify that the tenant’s contact information is accurate. This includes mobile and home phone numbers, emergency contacts, and that the current address and the address listed on the tenant’s driver’s license match. “Collections are an intricate part of the revenue process and should be considered as important as a new move-in,” he says.
What’s more, Parham reminds managers to be on the lookout for red flags throughout the rental process. “We don’t rent to just anyone that walks in the door,” she says. “My managers are authorized to make a decision to rent to someone or not. Some people are too concerned about the price and how much the rent will be and too interested in when the late fee goes into effect or when you will take the unit to auction.”
Of course, the best way to avoid delinquencies is to reach out to tenants before they default on their rent. “We try to contact them before they incur a late fee,” Amsdell says. “Contact them when they’re available, not just when we’re available—early hours or after hours. Have mobile numbers for texts, emails, and other points of contact when signing the lease. The olden days of getting their physical address is maybe 50 percent accurate because they’re moving.”
Although snail mail may be returned, Saca still feels that mailing a monthly bill reminder to tenants 15 days before the due date is helpful for minimizing delinquencies. And Walsh suggests making a courtesy call a few days before a late fee is charged, giving the customer a chance to pay and avoid the fee since late fees can result in longer waits for payment or nonpayment.
Jones agrees that collections should commence before late fees are issued. He proposes sending at least one text and one email and making at least one phone call, but that managers should spread out the time between contacts. The aim should be to land one response from the tenant that can be logged in the system; it’s imperative that managers document all actions and responses. “The manager must understand their job is collections,” says Jones. “They are the single best source for making sure a customer is not sold at auction and we recover as many fees as possible.”
If sending emails, making calls, and/or shooting texts is too labor intensive for the self-storage manager, look for ways to automate these time-consuming tasks. Saca recommends self-storage owners hire a third-party collections company that will call or text delinquent tenants with reminders of past-due status and payment options. You should also have site personnel make collection calls to remind, help, and negotiate with customers in need.
Another tip from Saca: Intensify collection calls and texts in the first 30 days of delinquency and tell them a lien process will start after 30 days of delinquency. And don’t forget to offer multiple payment options: online, toll free phone number, and automatic monthly debit. Payment reminders send via email and text message should include links to a payment page as well.
Martin Lorch, president of BPI Capital Management, Inc., a self-storage management, professional property management, and development and consulting company based in Phoenix, Ariz., adds,
“Start the process of collecting early, meaning when somebody is delinquent, jump on it within days of the due date. And follow up. The sooner you collect it, the better your chances of getting your money.”
Per Parham, when the customer is late the first month and hasn’t paid by mid-month, have a conversation about their ability to pay for the unit, and negotiate a way to remove them from the unit if possible. “It is better to get some money and then have the unit available to rent to someone else than to go through the auction process and risk getting nothing,” she says. “If they decide to stay, we try to get them to pay one month ahead.”
Be The Squeaky Wheel
When it comes to collections, the squeaky wheel gets the grease. For that reason, self-storage managers must be diligent and persistent. “General managers and everyone else need to step up and be more vigilant,” says Amsdell. “When you look at the sheer number of tenants who fall into that late category, a lot of that’s premeditated. Oddly enough, it happens as much in wealthy communities as in challenged communities.”
Parham goes on to say, “In my 30 years of self-storage experience, I have only had one month of no delinquent units. You work hard to get rid of those handful of customers who always seem to be late paying, and then another group rises up and takes their place. It is a fact of self-storage life.”