Direct payments is a new scheme which will change the way housing benefit is distributed.
Currently it is given to landlords but the UK Government wants the benefit paid to tenants who will then be expected to pay their rent with it.
But 75% of people taking part in a direct payment trial in Edinburgh have paid their rent a month late and 13% have been removed from the pilot because they are in arrears, Holyrood's Welfare Reform Committee heard.
The pilot's landlord, Dunedin Canmore Housing Association, which is a registered charity, found that parts of the scheme are "impossible to manage", chief executive Ewan Fraser said.
Its housing services director Graeme Russell said it has had to take on more staff and devote considerably more resources to manage the change.
Mr Fraser said: "We tried to be really positive about making the changes happen and put politics aside. It has been very resource-intensive and it has been quite challenging.
"This has not been an easy project. There have been a range of challenges and we have found some things almost impossible to manage properly."
Mr Russell said: "The demonstration project has been operating for 18 months, having commenced in July 2012 in five other pilot areas south of the border and in August at Dunedin Canmore in Edinburgh.
"A six-month extension, which ends this month, was agreed to assess the impact of under-occupancy charges on direct payments and learn more from the pilot areas.
"Direct payments have been introduced to tenants who previously had their housing benefit paid direct to landlords. The exercise has been more resource-intensive than we or anyone else could have reasonably predicted.
"To meet the demands of the demonstration project, we have committed additional resources, employed additional staff and ultimately adjusted the priorities of the organisation to ensure that we were in the best position to give advice and assistance to tenants affected."
Dunedin Canmore has accumulated nearly £150,000 of rent arrears as a result of direct payments, the housing association said in a written submission to the committee.
"Rent collection and participation in the direct payment demonstration project has been considerably more resource-intensive than originally anticipated," it said.
"It necessitated behavioural and practice change on the part of the housing association, its staff and tenants, and resulted in increased levels of tenant indebtedness."
Four-fifths of tenants in the pilot do not have a job (81%), while a fifth have significant literacy or numeracy difficulties (19%).
Nearly a third manage their finances poorly (31%), compared with one in 12 who manage them very well (8%).
Around three in five support housing benefit being paid to them directly (58%) but only a quarter are comfortable setting up a direct debit to pay it on to their landlord (27%).
Around three-quarters prefer to pay all of their bills in cash (73%).
The submission states: "Around 75% of tenants on direct payments pay rent the following month. Tenants paying late and into the following monthly rent debit cycle will increase our reported arrears and affect cash flow assumptions.
"In the lead-up to the introduction of universal credit we will be working with affected tenants giving advice and support to bring their payments in line over a period of time with other tenants, with rent due on the first of the month.
"While direct debits may be the landlords preferred payment method, this is not replicated by how tenants pay their rent with between 24% to 32% using this method."