Calculating rent arrears: two methods, two different results

Until recently in Console Cloud, rent arrears could only be calculated on a per day basis. This means when a tenant is one day in arrears, the amount they owe will be calculated as one day’s rent. 

This method suited most Australian agencies just fine… unless they lived in Western Australia or Victoria. Rent arrears in these two states are typically calculated on a rent period basis. In other words, if a tenant was one day in arrears, the amount they owe will be calculated as one full rent period’s rent. 

 

More options for everyone, and the right option for Victoria and Western Australia

That’s why we developed the rent arrears by rent period calculation option in Console Cloud

Now, no matter which state or territory you’re in, you’ve got the rent arrears option that suits you best. 

“The method you choose will generate a very different arrears figure, especially when we consider part payments.”

 

And now, here’s a primer in rent arrears calculation methods, and the effect of part payments on arrears calculations.

The topic of rent arrears can spark some pretty hectically confusing debates online, leaving some people in doubt as to how specifically part payments of rent for tenants in arrears are calculated using either method. 

But it’s important for everyone in your agency to understand how rent arrears is calculated in any real estate software. Why? Because the method you choose will generate a very different arrears figure, especially when we consider part payments. 

We’ve created this neat little explainer video to help explain the difference between these two calculation methods, and how they work in our own cloud-based property management software, Console Cloud.

Not in the mood for video? Here are some cliff notes.

 

1. Rent arrears by daily calculation (current default setting in Console Cloud)

Arrears is calculated per calendar day

Using this method, rent arrears is calculated as per the rent owed per day for the property. In other words, if the rent for a property is $420 per week, the rent owed per day is $60 ($420 p.w. ÷ 7 days = $60 p/day). If a tenant’s paid-to date was 9 June, and a payment of $420 was due on 10 June, and the rent was not paid, then on 11 June, Console Cloud will calculate the tenant as being 2 days in arrears, to the value of $120: $60 per day x 2 days overdue = $120.

 

Calculating part payments

When a tenant makes part payments of rent, Console Cloud adjusts both the amount in arrears and days in arrears. If rent for a property is $420 p/week, and 9 June is the tenant’s current paid-to date, then a part payment of $120 ($60 per day x 2 days) made on 12 June (when the tenant is 3 days and $180 in arrears) will reduce arrears by 2 days and $120. After the part payment, the tenant is 1 day and $60 in arrears.

On the other hand, if the same tenant was 3 days and $180 in arrears on 12 June, and made a part payment that day of $100 (i.e. less than 2 full days’ rent), Console Cloud would calculate that the tenant only reduced their arrears by 1 day, with $80 outstanding.

 

2. Rent arrears by full rent period calculation

Arrears is calculated per rent period

Using this method, arrears is calculated by the rent owed per period for the property (week/fortnight/month). In other words, if a tenant pays $420 weekly, their last paid-to date is 9 June, and they miss their payment of $420 on 10 June, the tenant will be 1 day in arrears to the value of $420. If they haven’t paid by 11 June (2 days after their last paid-to date), the tenant will then be 2 days in arrears, still to the value of $420 (where the rent period is per week).

 

Calculating part payments

Console Cloud ignores part payment amounts when calculating the number of days a tenant is in arrears, but accounts for part payments when calculating the amount of money owed. In other words, if the same tenant makes a part payment of $120 on 12 June, the tenant will still be 3 days in arrears, but the amount owed will be calculated as $420 less the $120 part payment, or $420 - $120 = $300. 

This means that until the tenant makes a full payment for the current rent period, the number of days in arrears will be counted from the last paid-to date for a full rent period.

 

Clear as mud?

If you still need some help clarifying how rent arrears work in Console Cloud, or in other trust accounting software in Australia, get in touch with us via the Zendesk chat, or choose from other contact options on our Service team’s page.

 

Just here for the monthly rent calculation tips, not rent arrears calculation tips.

No problem at all! For more information about calculating rent periods, check out this article.

 

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