There are many benefits to online rent payments. Your tenants can set up recurring payments and have the choice between many different payment options, while landlords can enjoy automated bookkeeping and reduced delinquencies.
However, there is a small risk for credit card chargebacks, which occur when a tenant files a dispute over a transaction. These chargebacks have the potential to reverse what would have been a successful payment and take that money straight from your account when consumers file a dispute, alleging that a charge was made in error on their account.
It’s important to be able to dispute a charge that you think was made incorrectly. Some practical reasons for filing a chargeback complaint could be when you’re charged twice for a purchase or when you paid for an item you never received. However, sometimes these claims are made with the intent to defraud your business, and you should be aware of them.
It is important to note, though, that Innago, a rent collection app for landlords, reported that less than .05% of transactions last year experienced a chargeback. So, while it is important to be informed, do not let the potential for a chargeback keep you from using online rent collection.
Why do chargebacks occur?
The most common reason people file a chargeback claim is from rental applications. Rejected applicants may feel that they are entitled to their rental application fee after being denied housing. Whether these applicants do so simply because they want their money back or because they are truly confused as to what the charge is from, it is important to consider this possibility if you see a chargeback on your account.
Another common reason that landlords may experience a chargeback is when tenants are unable to make rent. When tenants make a rent payment credit card, they may try to lower their amount due by disputing the rental payment they made. Or, if they feel as though their payment is going to be late and they want to avoid a late rent fee, they may pay their rent without having money to for their monthly credit card bill and dispute the charge so they can make their payment.
Also, when the person you are housing is not the person paying rent (as is common with college students), the person being charged may be unaware of the charge on their card and dispute it out of ignorance.
In order to keep yourself protected from chargeback disputes, be as organized and prepared as possible using the following steps:
- Choose a good software partner
High-quality property management software will make it easier to not only keep your business and investments organized, but also to take the following steps. Some property management software platforms, like Innago, is free for landlords and offers a solution for many of the considerations listed below.
- Be prepared with proper documents
Keeping detailed transaction records and knowing where documents like rental applications, credit reports, and lease agreements are stored is a crucial step for fighting chargeback disputes. These documents, alongside a signed letter from the resident authorizing their rental payment, will save you from the possibility of losing money you are rightfully entitled to.
- Be clear about fees
To avoid complaints made in ignorance, make sure you communicate all necessary fees to your tenants. It’s probably best to provide a summary enumerating the fees your renter could see on their statement so they have a list they can refer back to in times of confusion.
- Include online payment authorization in your lease and require signatures
When your tenant signs their lease, it is a legally binding agreement that each of your terms and conditions will be fulfilled. When you say that you will be charging rent payments online, your tenant’s signature on the lease legally allows you to do so since you have their signed consent.
Chargebacks are not a death sentence
Experiencing a chargeback is not the end of your career as a landlord. Chargebacks are annoying and sometimes frustrating, but with the proper preparation and bookkeeping, you have the tools to fight any malicious claim that comes your way. Stay vigilant when checking your accounts and be sure, as always, to properly screen your tenants. In doing so, you will greatly reduce the risk of ever even seeing a chargeback.
A bounced payment is slightly different from a chargeback as far as I know – a bounced (or NSF) payment happens when a tenant doesn’t have enough funds in their account for the check they wrote, while with a chargeback the tenant actually files a dispute with their credit card company to say that they don’t recognize the rent charge [CN1] [CN1]