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The OwnerRez Blog

A blog about our thoughts, services, upcoming features and the industry at large.

Why you shouldn't reserve security deposits way in advance

We've recently noticed that quite a few owners have configured their security deposits so that they are reserved far in advance of the guest's arrival.  In addition, many release reminders are configured to go out long after the guest has departed.

For instance, it's not uncommon for many owners to set the reserve to 10 or 15 days before arrival.  A few even set it at 20.

This means that the guest's security deposit - say $500 - is being held on their credit card several weeks before they arrive at your property.

Except in certain rare circumstances, this is a very bad thing to do.

We highly recommend that your security deposits be reserved only a day or two before arrival.  When you add a new property in OwnerRez, we set the reserve and release reminder days to be 1.  This is not by accident - we think that 1 day is appropriate.

What Is a Security Deposit

As most owners know, a security deposit is a "hold" on the guest's credit card for a certain amount of money.  While that money is not transferred to the owner's checking account (like a payment is), it is also not available for the guest to use.

Many banks now show "temporary" charges on a consumer's online credit card statement.  So your guest can clearly see what amounts are being held when they login to online banking.  Even if they can't see the actual hold, they can definitely see that their "available balance" is much lower than it should be.

The Purpose of the Security Deposit

The purpose of the security deposit is to provide:

  1. peace of mind for the owner assuring that if damage occurs, the owner can easily collect payment for it without going through a difficult collection process, and

  2. peace of mind for the guest that they are dealing with a reputable owner who cares about his property.

Given these two reasons, there is nothing to be gained by holding the guest's money weeks before they arrive.  A hold of that long only serves to frustrate them and tie up their available funds.

Defeating the Purpose

The second reason you should reserve security deposits right before arrival is because long-held security deposits may expire before you can collect on them thus defeating the original purpose.

The length of time that a security deposit can be reserved (i.e. the amount of time a credit card "hold" stays held) is determined by the card-issuing bank and, secondly, by the payment gateway you use.

Authorize.Net owners have the longest reserve limits, usually out around 30 days.  If every security deposit was guaranteed to be available for 30 days, this would rarely be a problem.  You could reserve a security deposit 10-15 days before arrival, the guest could stay for a week, and you'd still have another full week to release it.

But a 30 day expiration is not guaranteed.  Only a few OwnerRez owners use Authorize.Net as a payment gateway.  Most others use our internal Cornerstone/Sage payment processing or PayPal.  For those owners, the expiration times are much shorter.

For instance, Sage defaults all holds to 7 days which is also the default limit for the banking system at large.  Some exceptions are available, but they are rarely given or used.

If a security deposit expires before you have a chance to collect on it, you have no other automated mechanism by which you can collect payment for damages.  At that point, you have to contact the guest directly and ask for their permission to collect a new payment.  Obviously, such a situation adds tension.

OwnerRez to the Rescue

We have designed a software fix for this expiration problem which will allow security deposits to be automatically renewed over and over again after they expire.  This will ensure that any security deposits that expire before the owner has a chance to release them are automatically reauthorized by the bank.

However, this software fix has not yet been released.  It has been placed in high priority on the development roadmap and will be worked on shortly.

In the meantime, if you start the clock rolling 15 or 20 days before the guest arrives, it is very likely that you are not going to be able to collect on your security deposits.

Failing Credit Cards

A common reason many owners like to reserve the security deposit that far in advance is because they're worried that if the guest's credit card fails a day before they arrive, there won't be time to correct it.

We have found that, the vast majority of the time, this is not the case.  When a security deposits fails to be reserved, we send the guest a detailed email which tells them what happened and provides them a custom payment form in which they can enter new billing info.  In addition, we remind them that their renter agreement mandates that a security deposit be reserved and, if not, that their reservation may be canceled.

Most of the time, this automatic process is all it takes for the guest to scare up new billing info, and the owner never has to lift a finger.  In those rare exceptions when the guest does nothing, it's easy enough to give them a call late in the day - or even the next day as they arrive - and reserve the security deposit over the phone.

Be Careful With Your Guest's Money

Regardless of how smoothly your booking process has been running, please take a minute to review your security deposit settings and think about how you are tying up your guests' money.

Again, we highly recommend that you set both your reserve and release days to 1 so that the security deposit is held for as short a period as possible.

How To Change It

Navigate to one of your properties, select the Billing Details menu and click the "Change" button.  In the bottom section, you'll see your options.  Remember, the "Days After To Release" field does not imply that the system automatically releases your security deposits.  Instead, a reminder is sent to you, once per day, with one-click instructions on how to release it.  All releases must be done by you, the owner.

Any changes done to the billing details on a property will only apply to quotes and bookings that are created after the change.  To change existing quotes and bookings, you'll need to navigate to those and change them individually.

The fastest, most-professional way to book is with OwnerRez, the leader in online vacation rental software.  Sign up for your free account!

2 Comments (add yours)

May 3, 11
5:15 pm
DPVR.info says:

Great write-up on the process. I changed mine to 5 days (I use Authorize.net) which I feel is good. On occasion I have customers question the security deposit. I let them know that this method is much preferred to other methods (see below) and is what hotels and rental car companies use. If the continue to have an issue I point out that this is much preferable to what some people do. I have rented a house in the past where the management company *charged* my card for a $1000.00 deposit 30 days prior to the rental and then refunded it 10 days after the rental. This meant that in order to avoid a finance charge from my CC I needed to pay the $1000.00 and then end up with a credit on my next month's bill. Also they got the float of my money for 30+ days.

I do have on question on the posting, you mention... "we send the guest a detailed email which tells them what happened and provides them a custom payment form in which they can enter new billing info."

Is there a current way for me to send a payment form from within the system? I have a situation upcoming where they client wants to use a different card for the deposit then the payment. I was going to take the payment over the phone, but would prefer to use a form.

David

May 4, 11
8:35 am
Sam Westcott says:

@Dave

World's fastest comment!

We don't have a link exposed for owners to send that form around. We could - it looks just like the quote payment forms - but it doesn't just let the guest change their billing info. It also actually reserves the security deposit at the time they submit the form. It's designed for the collection day.

For the time being, you'll have to change the billing info for the scheduled security deposit manually on the booking.

We have designed some upgrades to the quote payment process that will allow the guest to enter different cards at the acceptance point. We're also going to have links in the confirmation email that let them do the same, and a reminder email the day before payment collection/security deposit reservation that reminds them of what's coming and asks if they want to switch cards.

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We are an online booking service for vacation rental property that helps managers and owners save time, create quotes and bookings faster, look professional and keep detailed records without needing an accountant or staff.