By Tammy LeRoy

t’s a safe bet that not long after the first self-storage businesses opened their doors in the 1960s, they were soon dealing with tenants who were past due on rent. “Delinquencies are what they are,” says Lou Barnholdt, director of sales and area manager for Atlanta-based Universal Storage Group. “I’ve been with this company for 23 years, and it really hasn’t changed.”

What has changed, however, is that newer technology makes dealing with delinquencies easier, more effective, and less costly. “All the way from great operational software that’s going to help you keep up with your customers better, to products like online auctions where you can advertise and host sales,” Barnholdt says. “Programs like Storage Collections or Collect Express are very economical. For $20 per month, they’ll sync in with your operational software and will text or robocall your delinquent tenants.”

Universal Storage Group aims to stay below 3 percent of the gross possible at all of their properties. One way to accomplish this, Barnholdt says, is to attract quality customers rather than quantity. “It doesn’t always behoove you to run those $1-for-the-first-month specials that might bring in customers who tend not to pay their rent on time,” she says.

Mara Paredes, director of operations for Santa Monica, Calif.-based The William Warren Group, says the rules under COVID-19 relief programs changed her company’s approach to handling delinquencies. “COVID relief programs allowed them to put off their rent for a year after the forbearance programs were no longer in effect,” she explains.

This required working with customers in unprecedented ways. The company’s facility managers are now calling customers who took advantage of forbearance to remind them that their debt is still accruing. They also employ automated reminder systems that notify tenants every few days once their rent is late.

Beau Agnello, senior vice president of operations for Farmington Hills, Mich.-based Pogoda Companies, says his company uses automated payment reminder programs, many of which integrate directly with the facility management software. “These reminders can be sent by text message, email, or even phone calls to inform customers about their overdue rent,” he says. “Pay attention to the tone used in the messages so that it is informative and friendly, providing customers with all the necessary information about late fees, restricted access, and auction dates.”

Agnello recommends providing as many payment options as possible, including a link to an Interactive Voice Response (IVR) system in automated messages to allow payments outside of business hours. “I’m always shocked by the IVR payments that come in at 3:00 a.m.,” he says.

Although Pogoda Companies automates their payment reminders, Agnello says their call center agents and store managers make reminder phone calls as well. “The personal approach allows us to be more flexible with payment terms, understanding that each customer’s situation is unique,” he says.

Barnholdt agrees that no matter how good your automated reminder systems may be, personal phone calls are essential. “Your managers are still your best line of defense,” she says. “They know the customers. They need to call them at least three times a month to get a promise-to-pay date.” She also advocates having a high-functioning, user-friendly website where it’s easy for customers to make past-due payments online.

Barnholdt notes that managers sometimes need to get creative. “If the phone numbers and emails aren’t working, you can try to contact them through social media, such as sending a private message,” she says.

Paredes agrees that late-paying tenants can be hard to track down. “Some people recognize our phone number and don’t answer, so we may have sister properties call that customer,” she says.

Sue Haviland, owner and lead consultant for Santee, Calif.-based Haviland Storage Services, says personal phone calls are unavoidable with tenants who are habitually late. “Having to talk to us, they can’t hide behind the machine,” she says. “We have a set timeline that follows collection practices to call, text, and email past-due accounts based on the number of days late. We have our automation set to go right into a payment option.”

Haviland thinks the key to managing delinquencies is to work them early. “A common thing I see on audits is that only the oldest debt is being worked,” she says. “The one-to-30-day-late accounts aren’t worked as much, or don’t have automated late fees set up.” Most of Haviland’s facilities have the first late fee set for somewhere in the 10 to 30 days late range, depending on lien law. She says managers typically focus on accounts with the highest days past due. “They tend to get busy, and by the time they get back to it, they are working on the same people,” Haviland says.

Instead, if you make it a regular task to work on accounts that are one to 30 days late, you can often collect sooner or at least get the process going. “So, when they get the first late fee, it’s not a surprise,” Haviland says. “I see notes on accounts at audits all the time that show someone got to auction status but show no attempts to collect on it before they got that late.”

One of Agnello’s tips to keep delinquencies down is to promote autopay. “Our website performs extremely well with new renter enrollment in automatic payments,” he says. “We typically average around 80 percent of our online rentals signing up for autopay.” 

Although Barnholdt believes working something out with late tenants has always been a good strategy, in recent years, it has been critical. “There were laws in place during the pandemic where we couldn’t sell a delinquent unit,” she says. “We really tried to work with our customers during this time, sometimes taking less than they owed.”

Even when lien restrictions eventually went away, many customers had a difficult time catching up. “Sometimes, what you are allowed to do by law isn’t always the best decision,” Barnholdt says. “It’s best to get a non-paying tenant out so you can replace them with a paying tenant. We do everything we can to get their stuff back to them.” Often, she says, this involves settlement agreements.

Paredes agrees that this is sometimes the prudent course for facility owners. “If they say they absolutely aren’t going to be able to pay, we have their district manager contact the customer to see what can be worked out,” she says. “Pay to vacate is an option. So, if they owe $100 and say they can only pay $75, we do an addendum to their lease saying the $75 will clear their account but they agree to move out.” These tenants are usually required to move out within 24 to 48 hours.

Haviland says it’s important to document everything. “Make sure whatever system you are using has a good way of documenting the outcome of the email or text and notes the account,” she says. “When talking to the customer about the outstanding debt, take careful notes about everything that was discussed, including the customer’s comments in case there is a future debt dispute.”

Next, she suggests inputting everything into the system while the conversation is fresh in your mind. Verbally summarize the plan for the tenant, including when the debtor will send each payment and what form of payment will be used. Then, managers should continue to update the file so that any staff member can know the status. 

Although Haviland recommends being consistent with automated notifications, she suggests using a friendly, non-combative message. “We worked with people during COVID and everyone mostly got caught up,” she says. “I think as a whole our portfolio runs smaller on past-dues because we follow a set timeline according to our lien law and don’t let people get so far behind that they will never get caught up.”

Despite the best efforts, operators sometimes have to begin lien procedures to free up a unit that isn’t generating income. This is one area where technology can make the process easier. Paredes notes that electronic lien notifications are now allowed in most states, which is advantageous to operators.

Barnholdt also believes electronic notification is a step forward. “There are lien programs where you hardly have to have managers write your own notices of foreclosure,” she says. “You can sign up with these programs that will sync with your software and write your letters. They know your state’s guidelines and will keep you legal.” Universal Storage Group uses RPost, which Barnholdt says is a much cheaper, easier method than registered mail.

To manage the lien process properly, Agnello says it’s crucial to stay updated on your state’s self-storage lien laws. “For instance, in Indiana, where we have properties, a bill was recently signed into law reducing the waiting time for completing a lien sale and the number of days before a delinquent unit can be overlocked,” he says. “To stay current about changes with notice, timeline, and auction advertising requirements, your state’s self-storage association and Messenger are great resources.”

Barnholdt says products such as Nokē smart locks give you more power to overlock customers who aren’t paying. You should also have a lease that protects you by clearly explaining what will happen in the event that rent is not paid. She also suggests regularly charging late fees to train customers not to pay late.

Overlock technology is a time-saver for managers. “We use the DaVinci Lock System for the overlocks on past-due tenants,” Agnello says. “DaVinci Lock aligns with our goal to help customers have contactless access to our units even when there is no employee physically present.” They also use the lock system for auction buyers to help them clear out the unit quickly.

Agnello utilizes StorageTreasures’ auction review service (ARS) to reduce risk and complexity. “By using this online auction service, we can aggregate data to enhance the outcomes of our lien sales,” he says. The data allows them to identify trends and outliers that can help increase the average number of bids on each unit.

Haviland says her facilities hold auctions regularly. “Our tenant base knows we won’t sit on non-paying units,” she says. “But we are also willing to do pay-and-get-out plans to recoup some rent. We usually get more than we would get selling it anyway.”

Barnholdt agrees. “The best sale is no sale at all,” she says. “You always want to get those customers current so they can stay, or make a settlement agreement where they pay less than what is owed and move out within 24 to 48 hours. They get to save their stuff and you get to avoid a sale and the possible legal implications of that sale.”

Paredes agrees that lien sales should be avoided whenever possible. “Our goal is to reunite people with their goods,” she says. A lien sale is a lose-lose situation for everyone. Thus, when a late-paying tenant simply won’t oblige, one-on-one communication may still outperform today’s convenient, automated programs for handling delinquencies.