Charging Security Deposit for Rentals in 2020? Good or Bad?
No matter what rental business you operate, keeping customer’s value is on the top of the priorities. There are multiple aspects of a product or service used by customers that collectively form a perception about your company.
Not only the product or service quality is important but the customer’s satisfaction level is largely impacted by the delivery and after sales services that ramps up immediately after the end user consumption. Sometime, these services are complementary and some are based on additional charges that are taken at the time product sale.
Security deposit charges are among the additional costs that are being charged upfront by numerous firms in different industries. So, the question is. Is it a Good Idea or Bad?
Why Rental Companies Charge Security Deposits?
In multiple industries, the deliveries of products or items are based on the requirement and time frame customers want to own it. In such case, the deterioration in the quality or efficacy of an item becomes the responsibility of the customers. When the time frame is over, the item is no longer holds the same level of functionality is used to have and requires a maintenance before it can be put into use again.
Therefore, to secure both the items and keeping the quality intact, the firms intentionally charge security deposit that prevents them from hefty maintenance charges. And also, it acts as a warning sign for customers who recklessly use the item and sometime get it damage. In that case, the companies can charge the complete security deposit for tampered items. Thus, prevents the loss in case of damage.
What Rental Industries Could Charge Security Deposits?
Security deposits can be higher than the actual cost of the item and the amount is completely refundable when all the terms are conformed. Some of the industries that charges security deposits are.
- Apartment Rental
- Commercial Property Rental
- Car Rental
- Bike Rental
- Equipment Rental
- Boat Rental
- RV Rental
Initially, security deposits were charged from tenants to cover the repair or damage to the property. However, the charges become exorbitant and are charged way above the cost of property itself.
From customer point of view, these security deposit charges are sometime the reason to not to opt a rental product or service.
Why Do the Vehicle Rental Industry Charge Security Deposits?
Most of the industries as a part of vehicle rental industry such as boat rental, bike rental, remote vehicle rental, car rental and many other similar sort charge security deposit depending on their policy.
The amount of security deposit varies from operators with different policy. Security deposit is not a choice but is necessary for business operators to prevent any liability. This usually is charged as a fix fee upfront at the time of item delivery. This amount however may cause inconvenience for customers paying a large amount that goes in escrow for a fix period of time.
But, the amount is promptly refunded completely or partially depending on the damage done to the property and if it compensate for that loss. This adds a type of protection for the business owners but for customers is close to grave of funds.
Should Security Deposit be charged by Companies?
While charging security deposit for an offered product is not a new process and is quite beneficial to firm offering it to the customers for use. However, customers somewhat resist paying these charges that put their funds in escrow arrangement for a quite long time. This thing becomes a matter of dissatisfaction for the customers and results in feedback and sometimes lost of customers which could have been a loyal customer in longer run.
So, charging a security deposit could not be a wise thing to do and could hit the brand perception in a negative sense. Companies have to think of ways to securing their items other than charging an exorbitant amount or could reduce it to a window where customers don’t find it hard on their pocket.
What are the Alternatives to Security Deposit?
One way to replace security deposit is to offer a subscription based product deliver. This subscription could be either monthly or annually for a fix amount. Customers with a membership are allowed waiver on security deposits.
This has 2 benefits.
Firstly, the customers could avoid drifting into escrow arrangement where their funds are locked. Secondly, the customers have the sense to use the items more carefully being a repetitive customer.
Other way to do is to charge a small monthly fee which could be used to insured the item that is offered for consumption instead of charging the entire fee at once. This is how Rhino an insuretech company helped landlord to build trust and maintain relationship with customers. Not only does, it helped renters from the steep cost of moving but also secured property for landlords.
Upfront Deposit vs Security Deposit
Depending on the rental business industry some firms prefer to charge an upfront deposit like 50% from the total value of the order which in case the user wants to cancel the order is transformed into store credit and can be used by the customer at a later time. This approach is good for amusement parks, bounce house, and inflatables businesses because they will secure the spot for the client, potentially losing other clients.
Authorize full amount of the rental upfront and charge at the completion of the order
This strategy is mainly good for av rental companies because they have mostly enough inventory, they have repair service for the equipment so they do not want to loose clients because of security deposits, and events can cancel very often, so they do not want to pay too many refund fees. If the order is cancelled, the authorization is cancelled without any fees. If the order goes to the completion, the customer will be charged.
Security Deposits vs Insurance
For customers, the perception about security deposits and insurance is completely in contrast.
While the insurance charges are nominal that is a meager fee that adds to a final cost they pay for renting an item. This fee is not refundable but can cover only large losses or damage done but don’t cover minor aspect of the damage done by the renter. So, this is something that potentially pushes operators to charge security deposit other than insurance.
On the other hand, the security deposit being so weird and uncomfortable add discontent among customers for the large some being locked up for a long span of time for the damage that may happen to the item rented but is completely refundable on meeting the terms of refund. But is completely dependent on the policies of operator you are dealing with.
Keeping the customers’ interest in mind and keeping the business process easy and comfortable for them is quite important to nurture a valuable relationship with them. No matter what are the hurdles are there, there are ways to overcome them to make any business impeccable.
Reservety will make the process of adding any type of deposits, be it upfront, security, or authorization to your rental equipment easy to take and manage online.