How can landlords prevent rent payment fraud?

Rent fraud is a common concern among new landlords — and with good reason. No one wants to be taken advantage of, and being outsmarted by a scammer can leave you feeling helpless against any future problems you may have with rent collection.

however, Fraud Every modern business must deal with this problem, and it is part of running a successful rental business. By learning about the scams you might encounter and how to combat them, you’ll feel prepared if any of these concerns come back to haunt you in the future.

Here are the different types of rental fraud you may encounter and how to mitigate them.

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What is rent payment fraud?

Rent payment fraud varies depending on the payment method the tenant chooses to use. Here are some of the most common examples of fraud in various payment types your tenants Can choose:

ACH Hackers and Scams:

ACH Payments It is a direct transfer from one bank account to another through an automated clearing house network. If an employer has ever paid you by “direct deposit,” the ACH network is what they used. ACH payments are popular with renters because of the speed and ease with which they transfer, and often no transaction fees.

Among various Rent payment methods, ACH payments can be one of the most secure. However, you may still encounter some problems: namely, hackers and scams. The ACH network works in such a way that all a person needs to deposit or withdraw funds to another person’s account is their bank account number and routing number — that’s it. If a hacker obtains these two pieces of information, they will have access to all of your funds.

Although this is a frightening prospect, keep in mind that the application process is strict, and the ACH network also enforces transaction and volume limits. If there is a problem, understanding some of the ACH return codes can help resolve the problem as quickly as possible:

• R01: Insufficient funds — This code means that the tenant does not have enough money in their account to complete the transaction. Only full rent amount (not partial) can be deducted.

• R02: Account closed — This means that the tenant has given you a closed account number or has closed it recently.

• R03: No account – This means that the tenant’s bank account never existed in the first place.

• R08: Stop Payment — This means that the tenant has placed a “stop” on their account to prevent transfers from their account to yours.

Debit Chargebacks:

It is also possible that the tenant can dispute the ACH debit on their account to reverse the transaction. This collection strategy has a higher chance of working if the tenant does not normally pay via ACH transfer, as it will be viewed as a suspicious transaction. However, by keeping accurate records of previous payments, it is quite easy to compete Chargeback and recover your funds.

Credit Card Chargebacks:

Similarly, credit card chargebacks occur when a tenant calls their credit card company to dispute a charge that appears on their statement. It seems easy for a renter to become a scammer by deliberately disputing rent charges. If the tenant has been reliably paying by credit card all year, this strategy is unlikely to work — but again, detailed and accurate records are likely to save you in this situation.

P2P Fraud:

Peer-to-peer (P2P) platforms (think Venmo, PayPal, Zelle, etc.) have some significant limitations when it comes to security and fare collection. For one, this platform is not designed for homeowners and Collection of rent. You will need to set up a normal business account, as using a personal account to collect rent violates their user agreements. P2P platforms also don’t allow you to set and manage late fees or reject payments, which is especially important during evictions. Overall, P2P platforms are extremely risky for landlords.

Bounced Checks (Insufficient Funds)

Bounced checks are a more common type of fraud that you may encounter if you allow your renters to pay by paper check. If a tenant doesn’t have enough funds in their account to meet the check they wrote, the bank will reverse the deposit from your account — even if you’ve already spent the money.

Cash Fraud:

Even basic cash payments are vulnerable to fraud. If you allow tenants to mail cash or drop it off at the drop-off location, it’s easy for them to seal only half the rent in an envelope, leave it, and then claim the other half was stolen from the drop box. .

Related: Don’t fall victim to fraud: 5 tips to protect your business when dealing with payments

Tips to prevent online rent collection fraud

Now that you know the possible types of fraud, here are three top tips to prevent them from happening to you Rental business:

1. Screen Tenants Thoroughly:

Tenant screening is an underrated defense against all forms of fraud. Tenants who have made reliable payments in the past and have enough income to meet your needs should have no reason to cheat to avoid payments. Do not accept any renters who have not proven their reliability through a thorough credit check, criminal background check, eviction history and income verification.

2. Collect fares online (but not through P2P platforms):

There are many reasons to collect rent electronically, but the most important is that digital rent collection offers more security than traditional cash or checks. However cheating can certainly still happen Online payment, online options give you more chance to recover your lost funds with accurate data and record-keeping. Rent collection software is also encrypted, so both your and your tenants’ funds are protected from outside hackers. It also speeds up the processing time of transactions, so you’ll know about any problems sooner rather than later. But if you can, avoid P2P platforms for the reasons mentioned earlier.

3. Keep a spotless record:

Diligent and accurate record-keeping is your best defense in case of chargebacks and other types of rent payment fraud. If a bank or credit card company asks you to prove that a withdrawal from a tenant’s account was legitimate, your records will clearly show what the payment was and that the charge was correct.

It is likely that you will fall victim to some kind of fraud during your time there Management of properties and tenants. However, the good news is that with the right knowledge, tools and resources, most of these patterns are easy to mitigate and won’t affect your business in the long run.

Related: Think you can’t win against chargebacks? Think again.