What Is The Real Cost Of Accepting Rent Via Check?

By now, you’re likely familiar with the term ACH. If you aren’t, an ACH payment is an electronic alternative to a paper check that is used to make payments and transfer funds online. They are so similar, in fact, that many alternatively call ACH payments eChecks. The benefits of such a form of payment in contrast to traditional paper checks and cash are fairly clear (simplicity, security, convenience), and you’ve likely weighed those pros against the (perceived) con of increased cost. However, the notion that electronic payments like ACH transactions are more expensive than paper checks – or, more commonly, that accepting rent via paper check is actually free – is the result of a misconception. Paper checks do have a cost, and it’s not merely in time. Both directly and indirectly, rent collection via paper check is often more expensive than ACH.

The Real Cost of Going to the Bank

Paper checks are loaded with sunk costs and indirect fees. It is because of this that people often mistakenly think that accepting rent via paper check is a free means of processing funds. But this is not the case. There are a few fees that should be taken into consideration – primarily manpower and incidental costs – that are not included when processing payments via ACH.

For starters, depositing paper checks at the bank requires you to physically be there. The average distance between bank branches is increasing due to branch consolidation and closures. This means more time (manpower cost) and gas, mileage, wear and tear, etc. (incidental costs). But let’s get into specifics.

The average distance to a bank is about 3 miles. Based on operating costs, gas, depreciation, wear and tear, etc. the IRS allows a tax deduction of 53.5 cents per mile driven. This means that every time you head to the bank and back to deposit checks, you are looking at a baseline travel expense of $3.21.

But what about time? Taking stoppage and idling into account, we can assume an average local speed of 20 mph. This would put our total commute (driving there and back) at just short of twenty minutes. Let’s also assume it takes 5 minutes to deposit the checks (generous, we know), and we arrive at a time expenditure of about 25 minutes.  The median hourly wage in 2016 across the US was $17.81 (and you’re probably worth more 😉). Therefore, if convenience were your only cost, you’re still looking at a time expense of $7.42 just to drop off some checks. 

And we’re not even taking into account the bookkeeping time saved, the educational period for your tenants (“Where do I send the check?” “How do I fill out a check?” “I forgot”), or the literal cost your tenant pays for a checkbook and stamps (typically around $1.22). As funny as it may seem, many Millennial and Gen-Z renters have no experience at all paying by check.

Further reading: Renting to a New Generation: Are You Ready?

The Real Cost of Waiting

Those J.G. Wentworth commercials may be obnoxious, but they’re right about one thing: if it’s your money, you want it now. Unfortunately, if you’re accepting rent via paper check, you’re going to have to wait.  If a check is mailed out on its due date, it will take 1-2 days to arrive. Assuming you head down to the bank immediately after receiving it, you’ll wait another 3-5 business days for the depositing bank to reach out to the issuing bank to confirm the funds are available and should be transferred into your account.  Over the course of a year, that’s a lot of missed interest and has the added negative of limiting your float for additional acquisitions. And if your cash flow is tight for mortgage payments, collection time is a nightmare. ACH processors, in contrast, deliver funds just 3 business days after submission (some in as little as 12 hours – Innago included!).

And if that check bounces, things can turn ugly fast. If a paper check bounces, you won’t know right away, and it can take up to a week for the notification to reach you. You’ll then have to reach out to your tenant, run through the process again, and will likely incur an NSF deposit fee between $10 and $20. You might be able to charge your tenant a service fee for the bad check, but there’s no guarantee when you’ll get it. Ultimately with paper checks, you can expect them to occur with a frequency of around 2.23%. ACH payments reduce that rate to just .345%, a sliver of what you could expect otherwise (Innago offers full bounced check protection – ask us how!).  So let’s run some numbers.  If you have 50 tenants, you can expect about 1 of those paper checks to bounce. That means an extra $15 in NSF fees every month. And that’s not a hidden cost, it’s a very real fee.

Don’t limit yourself to ACH: 5 Reasons You Should Be Accepting Rent With Credit Cards

The Real Cost of Paper Checks

Even after seeing these numbers laid out, the cost of accepting rent via paper check can seem disconnected from your own experience. You may even feel that we’ve overestimated our calculations, but we can assure you, we’re on the conservative side of the spectrum. Most researchers estimate the transaction cost of a paper check at $3.00 per transaction. And some believe it to be as high as $10.00! Regardless of the exact amount, one thing is clear: the decision to process paper checks instead of electronic payments costs you time, convenience, and most importantly, real money. So, while offering this service may seem like you’re doing a favor to your tenants, you’re really doing yourself the favor.

If money isn’t enough to sway you, here’s a few more reasons: Online Rent Payments: Set a Course for Modern Renting

Let us know what you think of paper checks in the comments.  And if you like what you’ve read, be sure to subscribe to our blog or Like us on Facebook!