Chargebacks in property management: How landlords can protect their income

Chargebacks can be a significant challenge for landlords and property managers who accept digital payments. While online rent payments offer convenience, they also open the door to potential disputes that can unexpectedly reverse rent or fees.

This guide covers what is a chargeback, how it affects rental income, and the most effective strategies landlords can use to keep their cash flow steady.

What is a chargeback?

A chargeback is a dispute request from a cardholder to reverse a payment made with a credit or debit card. In the property management world, this means that a tenant or applicant can ask their bank to return funds they paid for rent or fees, skipping over the landlord entirely. While chargebacks are meant to protect consumers from fraud, they can sometimes happen due to misunderstandings or even intentional misuse—also known as “friendly fraud.”

The process differs slightly between credit and debit cards:

• For credit cards, the bank or processor will reverse the charge to the credit account and post it as debt on the cardholder’s account.
• For debit cards, the chargeback puts the money back directly in the tenant’s bank account, affecting the landlord’s balance immediately.

How chargebacks can affect rent payments

Chargebacks can disrupt a landlord’s income stream and add extra fees to manage disputes. Unlike retail, where chargebacks might be infrequent, housing-related chargebacks are significant, especially since tenants may use them to delay or avoid payment. Each chargeback incurs processing fees, and in some cases, even a single chargeback can have financial consequences, especially for smaller property owners.

When tenants file a chargeback for their rent, known as a chargeback rent transaction, landlords face immediate revenue loss and potential processing fees. Unlike standard rent payments, these disputed payments disrupt cash flow and can add additional administrative work to verify and challenge the chargeback.

With about 15% of U.S. households behind on rent, the risk of chargebacks can increase during financial hardships. Tenants may file chargebacks out of genuine need or even as a tactic to buy time when they can’t afford rent. Since banks tend to side with cardholders, landlords need documentation and preparation to respond effectively.

Difference between chargeback and refund

Understanding the chargeback vs refund distinction is essential for landlords managing rental income. While a chargeback involves the tenant going through their bank to reverse a payment, a refund is directly issued by the landlord, offering more control over the process. This chargeback and refund difference is important to keep in mind, as refunds generally have fewer associated fees and less disruption than chargebacks.

Chargebacks and refunds can look similar but serve different purposes in rent collection. A refund is initiated by you, the landlord, to return funds directly to a tenant or applicant, often per an agreement or policy. Refunds provide flexibility if you decide to issue them, and you remain in control of the process.

A chargeback is a tenant-initiated reversal, bypassing your approval. Unlike refunds, chargebacks can catch landlords off guard and come with added fees. Having a clear refund policy in place can sometimes help prevent chargebacks, as tenants may be less inclined to file one if they know other options are available.

How to safeguard properties from chargebacks

To safeguard properties chargebacks, landlords can put measures in place to reduce the risk of payment reversals, such as setting up clear payment policies, obtaining signed authorization from all responsible parties, and using secure property management software. These proactive steps help landlords manage payments and prevent unnecessary income losses.

Checklist for securing rental payments

• Establish a no-refund policy for specific charges, such as application fees.
• Request signed authorization forms from all parties involved in payment, including co-signers or guarantors.
• Clearly state all fees and payment expectations in the lease agreement to avoid misunderstandings.

Chargeback protection measures to mitigate risks

Using chargeback protection measures can be invaluable in keeping your income stable. Start by choosing property management software with built-in safeguards like online payment authorization and secure payment processing. This type of software offers customizations that help clarify no-refund policies and prevent unauthorized reversals.

Documentation is also a key part of chargeback protection. Maintaining a digital record of payments, tenant agreements, and account history will streamline your response if you need to dispute a chargeback. Regularly reviewing financial statements and keeping a watchful eye for unexpected reversals can also help you catch potential chargebacks early.

What is chargeback protection? Benefits for landlords

Chargeback protection refers to methods and tools designed to safeguard your income from unexpected reversals. For landlords, this can mean having extra support to resolve disputes without losing too much time or money. Chargeback protection measures often cover the fees associated with chargeback disputes, allowing you to recover revenue more efficiently.

Key benefits of chargeback protection

• Reduced financial risk from unexpected chargebacks.
• Clear documentation that can deter illegitimate chargebacks from tenants.
• Improved tenant experience by offering payment flexibility without compromising your security.

Property management chargebacks

Property management chargebacks most commonly occur with rent payments, application fees, and other related expenses. Many of these chargebacks are due to “friendly fraud” where a tenant or applicant reverses a legitimate payment. Reasons can vary widely, but some common causes include misunderstandings about charges, disputes with roommates, or even accidental payments.

Common reasons for chargebacks in property management

• Application fees: Applicants may dispute fees if they don’t get approved, especially when they misunderstand non-refundable terms.
• Roommate or relationship changes: When cohabiting relationships end, one party may reverse a rent payment to avoid further responsibility.
• Unauthorized payments: Family members or others making payments on behalf of a tenant may file a chargeback if they don’t recognize the charge.

Use RentPayment to simplify rent collection and reduce chargebacks

At RentPayment, we provide landlords with digital tools to collect rent with rent payment software and minimize chargeback risks. Our secure platform allows you to accept payments from multiple methods while our automated processing system ensures consistent tracking and detailed transaction records, helping you quickly address any disputes. With built-in features like online payment authorizations and verification checks, RentPayment offers a reliable, hassle-free solution to safeguard your income and reduce time spent managing chargebacks.