Welcome to our new homepage! on our blog 🎉

15 May 2019

Your Tenant Said What? Pro Tips to Manage Delinquency and Collections for Your Self Storage Business

The first objective of the storage operator is rentals and income generation. Hiring people who are good communicators can go a long way toward achieving those objectives. Good communicators tend to be considered “people persons”. Surely you know the type, these are the people we come across in our lives that immediately greet you with a smile, are always friendly and helpful.

Among the next most important responsibilities of the storage operator is collecting the rents and late fees. In most cases our customers make payment as agreed. But there are always a certain percentage who fail to do so which requires special attention from the operator.

Anyone with a year or two of storage experience probably feels they have heard about every possible excuse for missing a scheduled payment.

As a professional operator we then put on our “collections manager” hat and start the process. Typically, we initiate this process by attempting to contact the customer by phone. Most operators also mail a late notice. This notice informs the tenant their rent was not paid on time and a late fee has been charged to their account. In most cases, the tenant who honestly overlooked making the rent payment will contact us immediately to apologize and arrange for immediate payment. Too bad we are unable to clone these people! We all love those who agree to go on auto-pay!

The more difficult people to collect from are those that are well-experienced with dodging collection efforts.

They have often developed strong avoidance skills including never answering phone calls, never accept or sign for certified mail and sometimes seeming to fall off the face of the earth. These tenants are probably barraged by bill collectors each and every day so there is nothing new with your calls, they are just more of the same. It will require a real threat to their goods to get action, a threat such as an impending lien sale (auction). I’ve actually heard new renters ask managers, “When do you cut locks?” Certainly a bad omen for that manager – how do you spell deadbeat?

What I have found over my three decades in property management is the best sales people are often reluctant to be strong collectors. Sales people love people and want to be loved in return. They see enforcing the collection of delinquents as being the bad guy and often find it a very undesirable responsibility. Perhaps, but collecting the rent is critical to survival. Operators generally live up to their part of the agreement. It’s the delinquent customer who has not performed as agreed to in writing. Most rental agreements make the amount and due date very clear, no ambiguity there. These customers have created their own problems.

The best collectors are the no-nonsense operators who sometimes run the business like a military operation.

While they are relentless in their collection efforts, they can often turn off rental prospects when reciting the rules rather than selling during the sales presentation.

My choice in operator selection is to choose the best salesperson and help them accept their collection responsibility.

I often present the idea that someone who hasn’t paid has created their own problems, is an insult to them and should not be tolerated.

In my company, our managers make collection calls starting at twice weekly, but quickly elevate to three or more calls per week. The old adage “the squeaky wheel gets the oil” remains true. Some of the best times to call are early morning. It seems that sleepy people are not as much on guard and often answer the phone. The delinquent customer likely owes others as well. Our objective is to make the most noise and be the biggest annoyance so we can get paid.

In addition to calls we mail late letters, send email notices, over-lock the storage unit and deny access at the gate.

Of very high importance we document all of our collection efforts.

This is accomplished by making notes in the customer’s account in our management software. These serve as a permanent record and can be very beneficial if the customer spoke with the manager to arrange some form of payment schedule but comes in when the manager is not there. Our manager might agree to accept some payments but access is denied until they are paid up. Every once in a while the customer arrives when the assistant is working and offers some story about having an agreement with the manager to pay a small amount but be allowed access to retrieve just one very important item. Often they say they plan to sell the item to pay the rest of the rent. Please don’t fall for that baloney! With the notes, the assistant can see the exact terms of any agreement. Any experienced manager will tell you that someone who wants just a few things is likely to cherry pick the unit removing what they value most and leaving behind the stuff they really don’t care much about. Certainly not a situation you want.

An important aspect of collections is to listen to the debtor. Sure you’ll hear many made up tough luck stories, but try to get beyond them. I usually disregard the crazy story and bring the focus of the conversation back to the issue at hand.

“We are sorry to hear that your grandma died for the second time this year – now how are we going to get your account paid current? We really don’t want you to lose everything.”

Often when the debtor sees their smoke screen is not working, they realize their best interest is to work out some form of deal with us. Remember, while this process can be a nuisance and is additional work, it’s not personal. Some folks simply are their own worst enemy and fail to manage their affairs very well. On the other hand, those who are habitually late help to increase the income via their late fee contributions.

I detest waiving late fees. Certainly, the cable TV provider, phone company and your bank are very unlikely to waive such fees.

Why then do some operators feel it’s necessary? I assure you that most of the customers who complain about late fees would be the first in line to demand some form of rent credit if the gate was broken one day and they could not get access.

When dealing with delinquents before cutting locks we never know the relative value of the contents. After the locks are cut and we’ve seen the stored goods we can better assess if there is real value, hopefully too much for the customer to lose at lien sale.

I’ve found that in some situations where the customer clearly does not have much money and the contents are of low value it’s best to simply collect as much money as possible and have the customer move out the same day.

We require the customer to show up with a truck to move out when they come in to make the cash payment. We accept only cash at this point, no checks or credit cards. The end result is the unit becomes available for re-rental and we’ve collected far more than we might at lien sale. Let me qualify that last statement – under normal auction sales we know the value is relatively low. This may not be as true considering the current frenzy created by the storage auction reality shows. However, I predict this will not last as auction bidders discover that unlike cracker jacks there is not a prize in every box.

When it’s time to cut locks I caution you to act very carefully and follow the laws in your state exactly.

You may wish to go above and beyond the law and follow other protective procedures such as filming the lock cutting, sealing the unit with a numbered tag in addition to a red lock, and always have a witness. Shortcuts in the lien sale process can create real legal problems for you. We videotape the entire process of cutting the lock including writing the date and unit number on an erasable white board then placing it in the front of the unit to be included in the filming.

We also take still photos of the contents to be placed in the customer’s file. We further film closing and locking the door plus application of the numbered seal. The day of the sale that seal must be in place. This provides some assurance that no staff member could have opened the door and removed any of the contents. On occasion we hear from someone who paid up then claims they are missing something of a high value. With a numbered seal, photos, plus video of the unit’s contents we can show that big flat screen TV that was allegedly in the unit was not actually there. Evidence usually trumps phony stories!

Another issue that arises from time to time is a request to make payments to get caught up. The decision to allow this or not is a classic judgment call.

If we believe the situation warrants this concession we will often establish a short-term repayment plan. The first indication of good intent I look for in these situations is the customer in the rental office with some cash in hand ready to pay. Otherwise anyone can walk in just before the lien sale and say they will be able to pay the day after the sale. Show me the money now! We typically require a 50 percent initial payment and 25 percent of the balance in addition to the regular rent for the next two months. This customer will only have one opportunity to do a payment plan. Establishing strict collections protocol will set the tone for all customers.

I recommend you establish a lien sale calendar noting the event and the date it must occur for compliance with the law.

It’s a good idea to build in a few extra days as it’s not unusual for the newspaper to misspell a name or fail to run an ad on the specified date. Be sure to buy the newspaper on the publication dates for your ads so you can clip the hard copy plus the date and name header of the paper. Carefully review for accuracy. If there are errors, have them fixed and run the ad again the next day. If you’ve allowed some extra days in your schedule this should not cause any issues.

The day of the sale you will review every document related to the customer’s account and the sale. Be sure you have mailed them all notices, the required ads were published, and names are correctly spelled including accurate unit numbers. I’ve heard of a situation where the customer had two units, stopped paying on one and the operator sold the wrong unit. Can you say lawsuit?

Next, verify their account transactions looking for any transactions that may have occurred. On occasion, a new assistant may have accepted a small payment which really throws a wrench in the works. Your only choice then is to start over! If anything is questionable or in doubt I strongly suggest you hold the unit out of this lien sale to allow more time to resolve that issue. If you allow a sale to proceed with technical errors you may be helping some attorney pay for their vacation this year. Not getting sued is a good motivator to being cautious and accurate.

Once the sale has been held you need to vacate the units sold, apply the sale proceeds to the account as a payment, then write off any balance to uncollected rent and fees.

We refer anyone with a balance in excess of $100 to a professional collection service. It takes just a few minutes to submit the information. The best services make an entry on the customer’s credit record. This may cause them to settle up if seeking a loan sometime in the future. On occasion we receive a check from the collection company – it’s found money.

In closing, I recommend you do as much as possible to settle bad debt accounts as opposed to lien sale.

But remember, sometimes the customer has already removed their items of value and have abandoned the rest for you to deal with, perhaps their idea of providing souvenirs of their stay with you. These units are pretty easy to spot because they mostly contain junk, dirty clothes, etc. But you must treat them the same as a unit with valuable contents.

With regard to personal effects such as photographs, documents, and other personal items, it’s best to ask the buyer of the unit to return those items to you. They are of no value to the buyer but probably have sentimental value to the customer. Send the customer a letter advising you have personal effects they can claim at the rental office. There are differing opinions as to how long to hold these items. Check with your attorney for guidance here.