4 Reasons for Landlords to Avoid Money Orders

by | Jul 7, 2014 | Tenant Screening

Do you insist on money orders for rent payment? Many landlords do.

Some do it because they are concerned about cash in drop boxes or in the office. Others feel it’s a safety blanket that protects against bounced checks. A few do it out of habit.

tenant screeningBut, like everything in life, collecting rent payments is a balancing act. When it comes to money orders, what’s most comfortable for the landlord may be harder for the tenants – and that’s a problem.

Money orders offer some advantages, but there are four disadvantages:

1. Obtaining a money order every month is difficult for the tenants, and that is a major disadvantage when it comes to on-time rent payments. Landlords can’t always rely on late fees to make up for loss of cash flow.

The best policy for rent collection is to be as flexible as possible. Offering any variety of payment options will increase the likelihood of on-time rent payments, and foster a better relationship with tenants, who appreciate the convenience. Electronic payments are safe, fast, and best of all, many tenants like to pay that way.

2. If money orders are required over fear that the tenant is a deadbeat, this strategy doesn’t solve the problem. In fact, it only offers a false sense of security. There are better ways to deal with a tenant with credit issues.

For instance, rather than relying on money orders for protection, landlords should adopt a standard tenant screening policy that looks at credit, eviction, and criminal history before accepting an applicant.

Should a tenant be acceptable on other factors, but in the margin with credit, one option may be to accept a lease guarantor. Landlords also can offer a shorter lease term and then renew periodically if the tenant shows a good payment history.

3. Money orders can be stolen — not as easily as cash, but it does happen. In fact, a Florida sheriff last year warned area landlords to stop using rent drop boxes after dozens of leasing offices were targeted by thieves. Several money orders were stolen, altered and cashed. That left landlords and tenants to duke it out over who was at fault, and how the rent will be paid.

Unlike personal checks that come from the tenant’s bank, a money order can be issued by a number of different vendors. That means tenants may get the run-around as they seek a refund for lost money orders, and that will delay rent payment.

4. Some landlords like to use money orders to avoid bounced checks. It is still possible that the money order will be dishonored or payment cancelled for any number of reasons, although the likelihood is remote.

But the troubling issue is that a money order won’t tell you much about the tenant, except perhaps were they shop for groceries or gas. A personal check, on the other hand, can flag when a tenant has changed names, phone numbers, or banks. This information will be critically important if the account ever has to go to collection.

Many states provide a civil remedy specifically for bounced checks that protects landlords from losses. In addition, it may be possible to charge a bounced check fee in the lease agreement. This may offer the same level of protection without the risk of losing valuable data on the tenant.

On-time rent payments are key to profitability, and that means it pays to be flexible. It’s a good idea to keep that in mind as you decide your rent payment policies.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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