Delinquency poses a significant challenge for self-storage facility owners. This issue becomes even more problematic during the fall and winter when delinquency rates rise. Economic and psychological factors drive the increase in late payments, creating a complex environment that owners must navigate to manage and reduce delinquency effectively.

 

Economic Factors Contributing to Delinquency

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Holiday Spending

One of the leading causes of increased delinquency in the fall and winter may be the financial strain associated with the holiday season. Consumers may prioritize holiday-related expenses such as gifts, travel, and celebrations, often at the expense of discretionary expenses like self-storage rent.

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Year-End Financial Obligations

In addition to holiday expenses, individuals may face additional financial pressures as the year ends, including property taxes and insurance renewals.  These lump-sum payments can strain their budgets, making paying for ancillary services like self-storage more challenging. When these costs coincide with holiday spending, many individuals may struggle to manage all their bills, leading to increased delinquency.

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Seasonal Employment Fluctuations

The fall and winter months often see fluctuations in employment, particularly in industries reliant on seasonal work, such as agriculture and construction, that are more active in spring and summer. As temperatures drop, demand in these sectors decreases, leading to job losses or reduced work hours for those engaged in that work. Faced with reduced income during these seasonal slowdowns, some may prioritize essential bills like rent and utilities over discretionary expenses such as self-storage.

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Psychological Factors Contributing to Delinquency

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Financial Stress and Decision-Making

Financial stress intensifies during the fall and winter due to the combination of holiday expenses, year-end obligations, and colder weather, which can lead to increased anxiety about finances. Research from the American Psychological Association shows that financial stress can impair decision-making and lead individuals to procrastinate or neglect non-essential bills, which may include self-storage fees.  As tension builds, individuals may delay making payments even when they can afford them to avoid dealing with the issue. This situation can lead to a harmful cycle of late fees and increasing delinquency.

 

Present Bias and Holiday Prioritization 

Consumer psychology also changes during the colder months.  In behavioral economics, this is called "present bias," where individuals prioritize short-term pleasures over long-term responsibilities. The importance placed on tangible, immediate rewards—like buying gifts or spending time with family—can outweigh the perceived importance of paying for services like self-storage, which may feel abstract or distant.  This short-term mindset can lead to delinquency as consumers push non-essential bills like storage fees to the bottom of their priority list.

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Seasonal Factors Contributing to Delinquency

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Weather-Related Complications

The harsh weather conditions during the fall and winter can indirectly contribute to delinquency. Snowstorms, icy conditions, and other severe weather events can disrupt mail delivery services, delay in-person visits to storage facilities, and lead to temporary business closures. For customers who still rely on mail to make payments, these delays can result in late fees and increased delinquency. Furthermore, extreme cold can increase household heating costs, leading to higher utility bills, which may cause individuals to reprioritize their financial obligations.

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Seasonality and Reduced Storage Usage

The self-storage industry experiences higher activity during the warmer months, when people are more likely to move, declutter, or take on renovation projects. This seasonality means many tenants who rented units in the spring and summer may have reduced their storage needs by fall or winter but have not yet closed their accounts. These renters may deprioritize paying for their storage units, seeing them as an unnecessary expense as the year progresses, leading to increased delinquency.

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Also, tenants may be less likely to visit their storage units during the colder months, especially if the items stored are not seasonally relevant (e.g., summer sporting equipment and gardening tools). Reduced visits to storage facilities can result in a psychological disconnect, where tenants forget or deprioritize paying for units they are not actively using. This sense of disconnection can contribute to delinquency, as the storage unit becomes "out of sight, out of mind."

 

Strategies to Combat Delinquency

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Prevention:  Stop it before it Starts

Self-storage owners can proactively prevent delinquency by establishing a solid foundation in their client relationships. The lease agreement is a vital tool in managing tenants who fail to make payments. Throughout the rental process, it's crucial for facility staff to effectively communicate the lease terms and the repercussions of late payments, promoting accountability and comprehension. Upon lease signing, gathering precise contact details (including preferred email and phone number) and securing permission to send texts is paramount. Moreover, fostering a positive rapport with tenants from the outset can encourage punctual payments and offer support when collection efforts are required. By taking these proactive measures, owners can create a positive and smooth rental experience for themselves and their tenants.

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Regular Communication 

Sending invoices to customers before the due date helps remind them that they have a bill to pay. Utilizing the facility's management software, these reminders can be delivered via automated phone calls, text messages, or emails. Since each customer has different contact preferences, multiple communication methods increase the likelihood of on-time payments. Even if the account is set to autopay, an invoice can confirm that all credit card information on file is accurate and ready for the upcoming due date. These reminders also inform customers about the consequences of delinquency, including the late fees outlined in their signed lease. We see a direct increase in payments on days when emails and texts are sent to customers.  

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Make it Easy to Pay

Encouraging customers to enroll in automatic payments can significantly reduce delinquency rates.  By increasing autopayment enrollment by 3.9% from 2023 to 204, StoragePRO Management saw a 1.3% decrease in delinquency.  Automatic payments help reduce delinquency by removing human error and making payments consistent and reliable. When tenants enroll in auto-pay, they are less likely to miss payments due to forgetfulness, shifting priorities, or financial stress. Our internal data shows that customers enrolled in autopay stay four to six months longer than others and are less sensitive to price increases.

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Training staff to actively promote auto-pay during customer interactions, especially move-in and billing inquiries is essential. One effective tool our managers have in their toolbelt is the ability to waive late fees for customers who enroll in autopay. Including a step-by-step explanation of the auto-pay setup in the welcome materials for new customers can also effectively communicate the advantages of auto-pay. It can also be set up as the default payment method during the rental process, allowing customers to opt-out if they prefer manual payments.

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A call center can help self-storage tenants pay their bills and avoid delinquency. With real-time assistance, tenants can quickly resolve issues or clarify billing details, reducing payment delays. Because call centers are available even when the facility is closed, they can accommodate tenants with busy schedules and ensure payments can be made anytime.

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Early Payment Incentives

Operators can also offer early payment incentives to encourage timely payments.  We allow customers to prepay for months in advance.  We have also successfully run a "buy one get one" promotion, where customers are offered a free month for every month they pre-pay for up to one year.  This type of incentive can stave off delinquency by ensuring immediate payment.

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The Financial Benefits of Reducing Delinquency – Unfreezing Cash Flow

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Delinquency leads to potential revenue loss for facility owners and can have a cascading effect on operational efficiency and profitability. Reducing delinquency offers significant financial benefits, particularly by enhancing cash flow, and is one of the first line items we address when assuming management of a property. In one recent example, by promoting and improving enrollment in autopayments, we moved a client from a 12% delinquency rate to 7%, leading to an annual increase of $7,000 in cash flow.

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Lower delinquency rates also reduce the operational costs of managing late payments and pursuing collections. Collecting overdue rent often involves sending reminders, contacting tenants, and potentially initiating legal action or auctioning off units. Each step incurs labor, materials, or lost time costs. Additionally, the time spent on collections detracts from more productive activities. By reducing delinquency, owners can streamline operations and focus resources on enhancing customer service and facility management rather than chasing unpaid bills.

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Avoiding the Auction Process

Owners who successfully reduce delinquency can avoid the costly and time-consuming auction process. Auctions require significant administrative effort, including advertising, compliance with legal regulations, and logistical management, and often, the amount recovered does not exceed the amount owed.

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While owners might wish to avoid the auction process entirely, it remains an unavoidable aspect of the industry. However, partnering with a third-party management company can elevate this process. These companies possess the legal expertise to ensure auctions comply with local, state, and federal laws, assuming all associated risks. Their extensive experience means they have established systems for conducting auctions efficiently. Additionally, their scale allows them to secure better rates for online auction platforms, which helps automate and improve outcomes for owners.

 

Enhanced Customer Retention

Reducing delinquency also positively impacts customer retention rates. Satisfied customers are likelier to remain loyal and continue renting units, an essential part of maintaining steady revenue. Customers who feel valued and efficiently manage their payments are less likely to seek alternative storage solutions. This increased retention stabilizes income and reduces the costs associated with acquiring new customers, making it financially beneficial for owners to invest in strategies that reduce delinquency.

 

Conclusion

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Reducing delinquency has multifaceted and significant financial benefits for self-storage owners. By understanding the unique challenges during the fall and winter months, businesses can mitigate delinquency and maintain more substantial cash flow during these slower seasons.

 

Partnering with a third-party management company offers significant benefits for owners seeking assistance dealing with delinquency and other operational concerns. These companies bring industry expertise and knowledge, optimizing operational efficiency, marketing strategies, and revenue management, which leads to higher occupancy and retention rates.  They handle day-to-day tasks such as staffing, HR management, customer service, accounting, and maintenance.  Additionally, they provide advanced technology solutions for seamless online reservations, payments, and facility monitoring, enhancing the customer experience. They also have access to broader market insights and economies of scale, reducing costs and improving profitability – all while freeing up the owner's time for other investments or personal interests.

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