Ultimate rent collection guide to rent arrears

Ultimate rent collection guide to rent arrears

Ultimate rent collection guide to rent arrears

This ultimate guide is separated into three major sections:

  1. How to prevent your tenant from falling behind in rent
  2. What to do if your tenant starts falling behind in rent
  3. How to evict your tenant for not paying rent

As a landlord a tenant falling behind in rent is your biggest threat.

Agents will make dealing with late rent payments sound really complicated because they want your business but it’s actually fairly simple.

You just need to follow the PROCESS!

Here’s the “secrete” process:

Section 1
How to prevent your tenant from falling behind in rent

  1. Find the ‘right’ tenant
  2. Set the tone with the right documents
  3. Direct Debit rent payments
  4. Keep proper records of rent collection
  5. Regular inspections
  6. Keep up with repairs & maintenance
  7. Get landlord insurance

Section 2
What to do if your tenant starts falling behind in rent

  1. Send late notifications via sms and email
  2. Good communication
  3. Document conversations
  4. Be objective
  5. Repayment plans
  6. Offer credit card payments
  7. Frequent late payers

Section 3
How to evict your tenant for not paying rent

  1. Termination notice
  2. Apply to tribunal
  3. Prepare for tribunal
  4. Tribunal hearing day
  5. Police lockout
  6. Loss of rent and other compensation
  7. Claim on Insurance

Section one is most important because if you follow that correctly you should never need to know section 2 and especially 3.

Alright let’s do this.

I’m actually a little bit excited.

Just a quick note before I get into this. For the sake of being open and honest I am a Co-founder at Cubbi. So although you can follow this process from start to finish without using Cubbi I have mentioned a few features in Cubbi which will save you time. In general Cubbi streamlines the process of renting a property so you don’t have to worry about all the ins and outs. Every activity is either automated or guided so if you’re already a Cubbi landlord you can stop reading now :)

Unlike any other articles spread across the internet this ultimate guide does not fluff over topics with generic advice; this is a hard hitting with steps you can put into action. Therefore I had to write it specific to one state being Victoria and I need a quick disclaimer…

I am a licenced real estate agent, not a lawyer so always consult and follow the Residential Tenancy Act, Consumer Affairs Victoria and VCAT (Victorian Civil and Administrative Tribunal) for specific laws in Victoria.

Alright enough of the yukky stuff.


Section 1

How to prevent your tenant from falling behind in rent

This is definitely my favourite section. Why? Because I have learn’t over the years in Property Management that it’s far more efficient to spend a bit of extra time to avoid problems rather than wait and deal with them if they come up – because they will.

It all boils down to this:

Tenants fall behind in rent because paying the rent is not up the top of their priority list.

Paying the rent should be their No.1 priority.

Follow these steps to ensure your tenant pays rent on time, every time:

1. Find the ‘right’ tenant

Obvious I know but the right tenants for your house will have ‘Paying the rent’ as their number one priority if finances get tight. Which let’s face it, can happen to us all from time to time.

Here’s a quick 5 tips to help find tenants who will pay the rent:

  • List your property on realestate.com.au and Domain so your property is seen by as many potential tenants as possible. This will allow you to pick and choose who rents your property instead of having to settle for ‘average jo’. You can do this in Cubbi too.
  • Price the rent correctly. Not too high or too low.
  • Don’t rent to friends or family. The rent is guaranteed to be last thing on their priority list if you rent to a friend as ‘you will understand’ why the rent can’t be paid.
  • Get 100 points of ID and proof of income before renting to the tenant. If you need to take any legal action against them like taking them to Tribunal you will need this information.
  • Check the tenant on the National Tenancy Database before renting to them. This will tell you if they have left a property with unpaid money owing before and verify their identity. You can check a tenant in Cubbi when they apply.

Check out the 15 Steps to finding great tenants for your house in the bonus section at the end for more help here.

2. Set the tone with the right documents

Everything you do leading up to handing over the keys to your new tenant will set the tone for the whole tenancy.

The minute the tenant gets the keys in their hot little hands is the moment your words fall on deaf ears.

You absolutely must do the following before they move in:

  • Sign the lease and give them a tenant handbook (by law you need to)
  • Complete a thorough condition report
  • Get the bond money and bond lodgement form signed
  • Give them: What happens if you don’t pay rent document

The 5 documents are in the bonus section at the end.

That last document explains what will happen if they miss a payment. If your tenants know what will happen they won’t complain because they knew up front what would happen if they missed a payment.

This strategy also makes it easier to maintain a friendly professional relationship even if you have to evict them.

Maintaining a friendly professional relationship throughout the whole tenancy is really important. Sometimes you might have to rely on the rapport you have with them when dealing with a sticky situation.

3. Direct Debit rent payments

If the rent does not get paid on time you need to follow up you tenant’s straight away (covered in the next section). This means monitoring your bank account on the day it’s due which is tedious and a very inefficient way to spend your time!

The other problem having your tenant schedule their own rent transfer is you have no control if the rent is paid or not. You just hope that they pay it.

What you need to do is set up your tenants on direct debit rent payments. This is where the tenant agrees for you to take the rent out of their bank account (or credit card) on the day it’s due.

This is well known in the industry as the best way to ensure the rent is always paid on time.

In my experience having rent paid by direct debit reduces late payments by 50% compared to normal bank transfers. This is because you are in control of taking the money out and not relying on the tenant to transfer the money.

The extra hidden benefit is late payment fees. By law in Australia you can’t charge tenants for paying their rent late however on Direct Debit tenants can be charged a fee for not having enough money in the bank when the rent is due. Although you don’t get this fee it is an added reason for the tenant to ensure enough money is there the day rent is due.

In Cubbi all rent payments are paid by Direct Debit from the tenants bank account. By law you must provide your tenant one free way to pay rent and this is free for your tenant. No complaints. As a secondary payment option, if the tenant does not want to go on the standard Direct Debit payments we now also have an ‘Approved Payment’ method whereby the tenant clicks a link from an email (or sms) they receive on the day rent is due to approve the payment first before it is deducted. It’s a nice way to meet in the middle.

As another option if your tenant receives Centerlink payments – Centrelink offers a free direct bill-paying service (called Centrepay) where the rent is paid straight to you from their centrelink payment without them ever receiving the money.

4. Keep proper records of rent collection

This is critical to your professional image. You also have a legal obligation to keep proper records and provide your tenant with receipts for payments upon request.

If the tenant can see you don’t have proper records (eg spreadsheet or just a bank statement) the smart, experienced tenants will try get away with not paying their rent on time. They will also exploit you if you ever try to evict them for late rent.

This is a simple and obvious must have.

Cubbi automatically records all rent payments for you and your tenant.

5. Regular inspections

Every 6 months you should inspect the property (standard in Victoria). This shows you care about the property and keeping a smooth running tenancy. For the tenant this also means; pay the rent or we will follow standard procedures to evict you.

The other great benefit to routine inspections is maintaining a great business relationship with your tenant. An open and transparent relationship with your tenant will encourage them to advise you well in advance if they are having difficulty with rental payments.

6. Keep up with repairs & maintenance

One of the main reasons a conflict will start between a landlord (or agent) and the tenant is because repairs of the property are not carried out in a reasonable timeframe.

For example; tenant reports a leaking tap but takes 2 months to get fixed. This happens a lot and really frustrates tenants.

This has a lot to do with agents taking forever to act but the tenant sees this as a landlord not fulfilling their obligations as part of the lease and therefore in return the tenant puts paying the rent down the priority list.

7. Get landlord insurance

How does getting landlord insurance reduce the chances of your tenant paying late?

Fair question. But it’s always the ones who don’t have landlord insurance who need it.

Most good policies have a $0 excess for rent arrears meaning you don’t need to pay anything to claim loss of rent (that you tenant never paid). This is providing you have minimised your loss as much as possible (which is following this exact guide).

Check out EBM, Terri Scheer, and Aon for landlord insurance.

These 7 steps are the most important things you need to do to prevent your tenants from falling behind in rent and making rent their number one priority when finances get tight.

PS: Don’t tell them flat out that their rent should be their number one priority. It might come out the wrong way and they could get offended. Let your actions speak louder.


Section 2

What to do if your tenant starts falling behind in rent

If you have done everything above you have put yourself in a great position for an nice uneventful tenancy. Rent gets paid, house gets looked after. Then in couple of years time the tenant happily moves out.

However you should always prepare for the worst. That is – they don’t pay rent and you have to evict them and go to tribunal.

Follow these next seven steps to get the rent paid back upto date and on time.

This will also make sure you have all your ducks lined up in a row if you have to eventually evict them.

1. Send late notifications if they’re behind

It’s really important to send late messages via sms and email to your tenant if they fall behind for 3 main reasons:

  1. They know they have missed a payment
  2. They know you know! – and yes you care!
  3. You can prove this at Tribunal

Money is a sensitive topic so it’s ideal if the messages are automatically sent on your behalf and not you personally. Your tenants will hate getting the messages as it will be a constant reminder they need to pay the rent.

Always keep in mind that your tenant could have genuinely forgotten to update their new banking details and so the payment didn’t go through or perhaps it’s taken an extra day to reach your bank account because of the weekend or public holiday.

This is why ideally you should cut them some slack for the first day or two unless it becomes a regular occurrence. Just keep in mind that in Victoria you can’t ask your tenant to pay earlier than the due date even if it takes 2 days for the rent to reach your account (which is silly if you ask me).

I found sending late notifications approximately every second day.

2 days late

3 days late

5 days late

7 days late

10 days late

12 days late

14 days late

16 days late

There’s no reason you can’t do this yourself but if you’re a Cubbi landlord we contact your tenant for you by phone, email and text message.

2. Good communication

As a guide you should call your tenant when they are 3 days late and then call again every 2nd day after that.

Your number one goal is to find out the answers to these questions:

  1. Why the rent has not been paid?
  2. When will it be paid?
  3. How much? (this should be the full amount)

Also while you’re on the phone try my favorite lines:

“Every day you’re late it reflects bad on your records, so it will be harder to get another rental property if you don’t pay”

“If you become over 14 days behind I will have no choice but to send you a termination notice that will only give you 14 days to move out…I don’t want to do this but I can’t claim insurance if I don’t follow the correct procedure”

“Would you like to organise a payment plan?”

It’s really important to come across as caring about their difficult situation and demonstrate that it will only get worse if they don’t pay.

If you have had an open and honest relationship so far this conversation won’t be hard.

Remember it’s just a process.

3. Be objective

When you’re speaking with your tenant you need to leave your personal feelings out of it.

Expect all kinds of excuses, but they all boil down to one thing – they don’t have the money or they’re spending it on something else.

It’s hard not to feel for them but the truth is, it’s either you or them. Without the rent coming in you’ll be the one in a bad financial situation – not the other way around.

Respect their situation but don’t get sucked into their world. Stick to your agenda – When is the rent being paid? How much?

You need a zero tolerance to rent arrears.

Always try to get the full rent payment. If you absolutely can’t get the full amount small payments are ok.

You can see now why you don’t rent to friends or family – You can’t be objective and you’ll never get the rent paid if things get sticky.

4. Document conversations

You need to document all these conversations because you might need to refer back to them if you have to go to Tribunal or make an insurance claim later on.

I find it easiest to send them a very quick message in Cubbi (or an email) after our conversation that might go something like this:

Hi Robert,

As discussed on the phone today. You will pay $1000 tomorrow and a further $500 on Monday the 21st.

Sorry to hear about your Grandma passing.



Notice how I have mentioned the 3 questions I asked them on the phone.

Tribunal always asks why the tenant was behind. I personally HATE this question. Seriously! Why does it matter – THEY ARE LATE! Are you going to pay their rent for them?

Rant over.

PS: Don’t ever speak back to the Tribunal member. :)

5. Repayment plans

Personally I don’t like repayment plans but they do show the tenant you care. It also helps to demonstrate to tribunal and to your landlord insurance company you have tried to minimise the loss of rent.

When creating a payment plan you have to be practical and reasonable so the tenant can actually stick to it.

To avoid any misunderstandings this should be in writing and very specific.

For example:

Repayment Plan – 22 Smith Street, Exampleville

The tenant Robert will pay $100 per week for the following 6 weeks starting from Friday the 20th of May 2015. This is on top of his monthly rent of $1,345 due on the 21st of each month.

To be clear here are the payment due dates:
20 May – $100
21 May – $1345 (normal rent)
27 May – $100
3 June – $100
10 June – $100
17 June – $100
21 June – $1345 (normal rent)
24 June – $100
21 July – $1345 (normal rent payments continue from here)

Failure to pay the agreed amounts on or before the due date may prevent another payment plan being offered again.

Signed by Robert.

(or get the tenant to email this to you in writing to show they have agreed to this)

6. Offer credit card payments

A great way to get the rent paid even when they actually have no money is to offer a credit card payment.

This is a bit rude to say but as a landlord I don’t care if this gets them further in debt at least the rent is paid.

Their situation will be worse if you have to evict them!

There are lots of interest free credit cards on the market these days that allow you to make purchases (pay rent) and not pay interest for 6 – 9 months!

Most agents and self managing landlords don’t have access to rent collection credit card payments but your tenant can pay rent via credit card in Cubbi.

7. Consistent late payers

In Victoria you can only give your tenant a termination notice if they are over 14 days behind in rent.

Sometimes you get the annoying tenants who consistently pay their rent late but never fall over 14 days behind so you can’t send them a termination notice.

BUT….There’s a trick for that.

You can apply for a ‘Compliance Order’ through VCAT (Tribunal). This will allow you to skip the process of sending a termination notice if they fall behind again.

For example the Compliance Order might say: The next time the tenant falls over 7 days behind in rent the landlord can skip sending a termination notice and apply straight to tribunal for a ‘Possession Order’ (to kick them out).

Keep in mind when you apply you’ll need to show:

  1. A clear ledger of all their payments showing they are consistently behind in rent (Download from Cubbi)
  2. Evidence of the late notifications (from step 1)
  3. Documentation of your conversations (from step 4)

You can start to see how everything comes together and it’s just a simple process.


Section 3

How to evict your tenant for not paying rent

Although most states are similar in nature this section in particular is specific to Victoria but you can still use this as a guide.

Your tenant must be over 14 days behind in rent before you can send them a termination notice to move out.

For example if the rent is $1,000 per month and is due on the 10th (rent paid up to and including the 9th). On the 24th you can send a termination notice.

However if your tenant has made any smaller (part) rent payments this must also be taken into account.

Using the same example if the tenant did make a small payment of $500 (instead of the full $1000) you can’t give a termination notice on the 24th because you must take into account the $500 paid.

Even though the $500 is not a full month’s rent is is still equivalent to 15.2 days rent. Meaning the rent is technically paid up to the 24th (and a few hours for the 25th).

A termination notice can not be sent until 14 full days after the 25th providing no further rent is paid.

How did I work out the $500 was 15.2 days rent?

$500 divided by the daily rate = 15.2 days

How to work out the daily rent:

Monthly rent x 12 and divide by 365

1000 x 12 = 12000 (yearly rent)

12000 / 365 = 32.876 (daily rent)

Daily Rate: $32.88 (this calculation is how tribunal do it)

$500 / $32.88 = 15.2 days

If you are using Cubbi this is very quick and easy.

Now that’s clear let’s move forward.

1. Termination notice

Regardless of their excuses the day they fall over 14 days behind in rent is when you need to give them a termination notice.

Why? Because:

  1. They’ll keep falling further and further behind
  2. You must follow through with what you have told them (and they’ll know you’re a sucker if you don’t)
  3. It will be harder to get this money back on insurance if you don’t

The best way to send them a termination notice is doing it online through the tribunal’s website – VCAT Residential Tenancies Hub.

Create your free VCAT account here. When you’ve done that click on ‘Notices’.

The prompts will guide you through (unlike the paper form) and it will save you time if you have to apply for tribunal later.

If you don’t want to do it online I’ve put the paper form in the bonus section for you.

Serving the notice

You can hand deliver the notice or send it via registered post.

I prefer to hand deliver the notice so the 14 days notice starts counting the next day.

If you do hand deliver it make sure you get them to sign an extra copy that you keep so you can prove it was handed on that day.

On the other hand if you decide to post it you need to allow extra days for postage. Australia Post have recently increased their delivery times which means you need to allow even more days for postage now:

Late rent notice period

If you sent the notice on a Tuesday you must allow 22 days from the day you send it to the termination date.

As a comparison to the two methods if the notice was sent by regular registered post on Tuesday the 24th May the Termination date will be the 15th June (22 days).

Whereas if the notice was hand delivered on the 24th May the termination notice would be the 8th June.


Hand delivered: 24th

Allowing for 14 days: 25th – 7th June

Termination Date: 8th June

More info on serving of notices

2. Apply to tribunal

If you have done everything I have said above it’s rare you’ll need to go to Tribunal.

On average when managing 100 properties I would go to tribunal once a year.

So by following this process you have about 1% chance of having to go to tribunal.

That’s pretty good odds. But if you do; here’s what you need to do:

Using the above example. You hand delivered the notice on the 24th May. The tenants need to move out by the 8th June 2016.

It generally takes around 2 weeks from when you apply to the hearing date (when you actually show up to tribunal).

If you are absolutely certain the tenants will not move out on the termination date (8th June) then you may like to apply straight after you give the termination notice.

I would usually apply for tribunal after the termination date when the tenants have not actually moved out because tribunal won’t make a hearing date until the termination date has passed anyway. I also don’t want to waste the $59.80 application cost until I have too.

So in the example I’ll apply on the 9th June.

Here’s how to do it:

  1. Log into the Residential Tenancies Hub (use the same account you created when sending the notice)
  2. Hover over ‘Applications’ then click on ‘New Application’
  3. Enter the notice number that was created when you sent them termination notice

From here follow the prompts to apply for a Possession Order. You can also make the payment on the website too.

From here you’re hearing should be about 2 weeks away (hopefully sooner).

After you have completed your application you should provide a copy (with any supporting documentation) to the tenant within 7 days. Preferably by registered post.

If you have any questions the help line for the Victorian Civil and Administrative Tribunal (Tribunal) is really helpful. Call 03 9628 9800.

3. Prepare for Tribunal

Preparation is key.

2 days prior to the hearing you should have the following ready in a nice little folder:

  • Signed lease agreement
  • Condition Report
  • Bond lodgement receipt from the RTBA
  • Rent Ledger showing all payments and current paid to date (print this out from Cubbi)
  • Evidence of late notifications and documented phone conversations
  • Repayment plans
  • Completed summary of proofs (make sure you have this completed)
  • Termination Notice/s (with registered post tracking numbers)
  • Application to Tribunal
  • Proof you served the tribunal application to the tenant (registered post tracking number)
  • Your ID and tenants ID (and their original application form)

More info – See: What should I bring to the hearing?

4. Tribunal hearing day

If you have prepared everything this will be a breeze.

Get there 30 minutes early just in case there is any last minute things you need to sort out.

When you are in the hearing don’t speak over the tribunal member. Just answer the questions and have the documents ready when requested. In about 15 minutes you’ll be walking out with the Order for Possession. Simple.

The Order of Possession will have a date on which the tenant must vacate the property by. This will typically be about a week after the hearing.

Providing the tenant moves out on the new vacate date given by Tribunal you will be down in total 6 – 7 weeks rent depending on if you hand delivered the notice and got a hearing quickly.

That’s why you must give the eviction notice to the tenants the as soon as they fall over 14 days behind – no excuses.

5. Police lockout

If the tenants still don’t move out you can apply for a Warrant of Possession.

This is where the Police and a locksmith with go to the property and physically kick the tenant out and change the locks.

This has only ever happened to me once so it very rarely happens.

To apply for a Warrant of Possession it’s a similar process to applying for a tribunal hearing.

You can apply online or manually fill out the form and send to VCAT (tribunal).

VCAT do not process applications for Warrant of Possession until the possession date on the tribunal order has passed.

So when that date has passed make the application and pay the $144.20 application fee.

VCAT will fax the order to the police and they will organise a time to go out there. It will be your responsibility to organise a locksmith.

This is the last step to getting your tenant out and should take about a week until you have your house back.

If you’re looking for more information about applying and going to tribunal check out the Landlord Guide to Tribunal in the bonus section.

6. Loss of rent and other compensation

If the tenant has not paid any rent since serving the eviction notice you are most likely down about 8 weeks rent in total.

So let’s get your money back!

When you get possession back of the property that’s when it’s time to claim the bond, rent and any damages or cleaning to the property.

You can claim by making another application to tribunal but this time for ‘Compensation’.

You can apply online. Follow the steps from ‘Apply to tribunal’ and ‘Prepare for tribunal’ above.

You will need evidence of any damages or cleaning required (or done). For example the condition report, final condition report, photos, invoices or quotes from trades people etc.

Note: You can’t claim on any cleaning you have personally done. If you want to claim for cleaning that has been done make sure you pay someone to do it so you have evidence of it – like an invoice.

You need to prove what you’re claiming essentially. Tribunal will not take your word for it.

If it’s just the bond money outstanding you can just get the tenant to sign the bond refund form and be done with it. But if they won’t return your calls you can apply to tribunal (free). Tribunal will give you an order to claim the full bond back from the RTBA.

From this point onwards, if the tenant is not going to pay up, in my experience it’s best to move on and focus on getting your property ready for the next tenant and rent it out ASAP. If you keep trying to suck money out where no money is – you’ll only lose more money.

7. Claim on Insurance

The good news is if you have followed everything above you should not have any problems claiming insurance on everything (well most things).

Your insurance company will want to see evidence of all supporting documentation. By having everything ready to go your claim will be quick and very efficient.

Here is the supporting documentation you will probably need:

  • Signed lease agreement
  • Condition Report / Final outgoing report
  • Bond lodgement receipt from the RTBA
  • Rental Ledger showing all payments
  • Evidence of late notifications and documented phone conversations
  • Termination Notice/s
  • Applications to Tribunal
  • VCAT orders (Order of Possession, Warrant of Possession and Compensation Orders)

I hope you never reach this stage where you have to claim insurance. That’s why I focus much of my time finding great tenants and doing everything I can to prevent them from falling behind.

I have been living and breathing Cubbi for a few years now which automates a lot of theses processes from advertising your property, screening tenants, rent collection, sending late notifications and keeping proper records of rent so you never have to go to tribunal in the first place.

Over the next 2 years you’ll see even more of these processes automated, essentially taking over real estate agents.

Don’t stress. I have not forgotten about the bonuses.

Throughout this huge post I’ve mentioned a few forms that you’ll need. To save you a lot of time I’ve put them all together in one simple download for you.

Here’s what you’ll get:

  1. 15 Steps to Finding Great Tenants for Your House
  2. What happens if you don’t pay rent document
  3. Lease Agreement
  4. Tenant Handbook
  5. Bond lodgement form
  6. Condition Report template
  7. Notice to Vacate (Termination Notice) – paper form
  8. Warrant of Possession – paper form
  9. Landlord Guide to Tribunal

Ultimate resources to rent collection

  1. 15 Steps to Finding Great Tenants for Your House
  2. What happens if you don’t pay rent document
  3. Lease Agreement
  4. Tenant Handbook
  5. Bond lodgement form
  6. Condition Report template
  7. Notice to Vacate (Termination Notice) – paper form
  8. Warrant of Possession
  9. Landlord Guide to Tribunal


About Michael Gilbert

Co-founder & Joint CEO of Cubbi. Common Ground.

I started real estate in 2006 on the NSW Central Coast. Loved it but noticed too many owners and tenants were unhappy with the value most agents were giving or simply wanted another option that didn't involve doing it all themselves. That's how Cubbi came about.