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Security deposit - how to?

Replies: 3 - Pages: 1 - Last Reply: Apr 29, 2017 3:19 PM by: BlueMtnCabins
BlueMtnCabins
Registered: 6/6/16
Security deposit - how to?

This may be a silly question, but how do they work? I could not find comprehensive article.
Currently the way I have it set up is I collect rent + damage deposit. Once the renter check out, I issue a refund for deposit (provided no damages).
So if my rent is $1000, and booking/damage deposit is $300, here is what I do.
1. 1st payment (if more than 30 days out) = $300 (deposited to my bank) = this amount also equal my damage deposit
2. balance payment (at 30 days mark) = $ 1000 (deposited to my bank)
3. renter check in and stays.
4. renter leaves and we check for damages
5. if no damages I issue a refund for $300 (debited from my bank)

with a conventional security deposit, when it is "reserved" X days prior to check in, how does the owner get money if something is broken by guest, for example? because seems that security deposit amount is never actually deposited to owner's bank?

what is an advantage to this as opposed to my method? the only drawback of my method is it skews the numbers by overstating them by $300. TIA

Michelle J
Registered: 1/6/11
Re: Security deposit - how to?

Hi again BlueMtnCabins,

You're right - we're completely empty on articles about security deposits. We're adding bunches all the time, but still haven't covered that area!

Okay, instead of writing out a book by hand, I found scads of support tickets I could steal from. Here are some relevant paragraphs...

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Our security deposit follows the hotel model of putting a "hold" on the guest's credit card for whatever you specify. This is done automatically by our system following the rules and settings you put in place on the property. Typically, the hold is done 1 or 2 days before arrival.

Our system fully manages this process. You get emails when it happens, whether successfully or unsuccessfully, and the guest does too. If the hold fails, the guest is notified just like when a payment fails and given a link where they can submit a new card. The vast majority of the time, the guest uses the link, within a few hours of getting the email, and everything is fine.

After departure, our system emails you (once per day, every day) until you release the security deposit hold. It's a very fast process that typically is just one click. There is also email templates that can be sent at that point, telling the guest their security deposit was released.

If you need to collect against the security deposit, that is also easy and part of the same process. Here's a quick pic showing what it looks like:
The money that is collected flows through your same bank account just like your payments and refunds. Our Payments Detail report show this revenue just like the other items.

It's important to understand that the hold we put on the card cannot be blocked or removed by the cardholder. The way a "hold" works with interchange (Visa/MC/Discover) is that it's like any other regular charge, only it's "pending" until you collect something against it. The cardholder cannot call the bank and ask that the pending charge be removed. No bank will do it based on interchange policy. Even if the cardholder was to cancel their credit card account entirely (or the card was stolen), they would still be liable for whatever was collected against the hold.

The way it work is that the "hold" is an authorization from the bank just like any other regular charge. The difference is that with a regular charge, the authorization is followed up a request to finalize or "capture" the authorization. In this case, there is no followup "capture" and the authorization stays in place until either we void it or collect on it, or its been too long and the bank expires it on their own.

This is the standard way hotels and other businesses deal with damage across the travel industry, and its what interchange recommends for best practices. The VRBO style is not recommended and can be disputed by the cardholder.

The other thing to understand is that, if you collect the full security deposit up front as a payment and then refund it after, your credit card processor will most likely not refund you the fees from the credit card charge when you refund it after. Some (like Paypal and Stripe) will refund fees. Most do not. So you may very well pay a credit card fee for the deposit each and every time. With the "hold" style, there is no fee until you actually capture a charge (which rarely happens).

All that being said, we are scheduling some new development which will fully support the VRBO style of security deposit. We're planning on differentiating it as "security deposit" versus "security hold" and allowing both to work on bookings. The "security deposit" will take a real payment which you'll refund after. The "hold" will follow what we do now. While we continue to recommend the hold style, we have a lot of users ask about the other method because VRBO has done that and they want to follow what VBRO does, so that's in the works.

BlueMtnCabins
Registered: 6/6/16
Re: Security deposit - how to?

Thank you Michelle, excellent write up. The reason I am exploring this is I am looking for ways to make my quotes more appealing to travelers(without increasing my risks) so Trying to weigh my options.
I do like my current set up in terms of having money in my bank - that keeps renter behaving because they know I have their money (and not just credit card auth).

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