post icon

Billing Best Practices

baby Wendy polaroid

Must-Have Fees Your Childcare Business Needs

The single most critical element to the survival of a childcare business is billing. Let’s look at fees your childcare business needs, and some others you may want to consider for your organization:

Security Deposit – Set your security deposit so that you can offset one cycle of billing. If you bill weekly for full-time daycare or aftercare, the security deposit should equal one week of tuition for those services. If you charge monthly for preschool or afterschool activities, require a deposit equal to one month.

This protects you and your business in two ways:

  1. It deters no-shows who register and then never attend. In the instance of a no-show, you have every right to keep a security deposit. After all, that child has taken up a spot you thought was filled, and you’ve planned for that income in your budget. If you require a security deposit, parents feel like they have made an investment, and they are less likely to walk away from money they’ve already spent. If the child doesn’t attend, at least you’ll have a billing cycle’s worth of income while you attempt to fill that spot with another child.
  2. Childcare security deposits can also help offset the risk of losing income from services you’ve already provided when parents don’t pay and then disappear for good. You may take a hit from the empty spot for a short time, but you’ll have the cash in hand for the time the child was in your program.

quote from Kyley about childcare business tuition billing on postcard

Convenience Fees – When you process childcare tuition or other payments electronically, whether online or by mobile, your business incurs a charge for each transaction. Those transaction processing fees can be offset by adding convenience fees.

This means that parents who take advantage of the accessibility and ease of electronic payments are paying for that convenience. A convenience fee is a small percentage (typically about 3%) on top of what they are paying you. This popular practice makes electronic processing something you can afford.

Note: It’s important to check your state laws regarding convenience fees. Nearly every state requires that convenience fees be disclosed and on display at the point where payment is made, but some states don’t allow fees for certain payment types. For example, you may not be able to charge a convenience fee on a credit card payment processed by a staff member on site, but you can charge a fee if a parent chooses to pay online through a mobile app or parent portal.

parent filling out annual registration with online forms helps childcare businesses

Annual Registration/ Enrollment Fee – How do you know how many students are returning to your program each year and how many spots you need to fill? By charging an annual program registration fee, you’ll know exactly who is committed to returning next year and who is moving on.

This makes it easy to plan in advance when it comes to your budget and any marketing efforts you’ll undertake to fill those empty spots and replace that income. Start early by offering a tiered enrollment fee structure, so folks who register early pay an early-bird rate, and families who miss that deadline pay a slightly higher fee. The first step to any good enrollment strategy is to get returning families on board first.

Other Fees to Consider

When planning your budget, it’s important to factor in other expenses you might incur throughout the year. While they might seem small at first glance, those payouts can add up over time. Consider incorporating some of these fees to improve your bottom line:

quote on a postcard

Must-have Policies to Set Clear Expectations

Here are some policies every organization should have in place before the first child walks through the door:

Late Pick-Up Policy

Your staff doesn’t work for free, and when they stay late because a parent is late for pickup, you have to pay them extra. That extra payroll can be a budget-buster, so you need to charge parents in a way that inspires them to always be on time. Outline this policy on your website, in your handbook, and post it loud and proud in a prominent place in your center so there are no misunderstandings.

Late Payment Policy

Late payment fees are ones that will elicit the most pushback from parents after they’ve been assessed, but you need to get paid on time. Make it clear to parents in your handbook, on your website and on every invoice exactly what the deadline is and the penalty for missing it. As with any policy, your late payment policy is only as strong as the way you enforce it, so the stricter, the better.

Kyley Herron quote on postcard

Out-of-Contract Policy

If you can offer parents the ability to drop off a child on a day that isn’t part of their normal schedules (think jury duty or something similarly inconvenient), you should be charging for that convenience. After all, this requires you to have more childcare staff on hand or on call to make sure you are always meeting state ratio requirements.

Returned Check Policy

When a parent bounces a check, that charge from the bank hits your account. That is an unbudgeted expense for your business. In your returned check policy, make sure you outline a fee that offsets the charge from your bank and accounts for the administrative time that your staff spent recording the payment and the return. Consider a policy that requires the make-up payment to be made in cash immediately.

Refund Policy

When issuing refunds, there should always be a waiting period, particularly when it comes to checks and ACH payments. This is because of the way banks process checks and ACH, and how funds may appear in your account initially, but then are removed once a transaction fails. A good rule of thumb here is to enforce a waiting period of 7-10 days to ensure funds have cleared before issuing any refund. For charges other than tuition, like registration fees, consider holding back an administrative charge for staff time spent processing the registration form, getting paperwork together, and entering data.

Convenience Fee/Automatic Payment Policy

If you’re processing electronic payments, that’s great! That means you’re accommodating the way today’s parents like to pay bills. That said, transaction processing fees are real, and if you’re absorbing all of them, it can be tough for smaller centers to afford. Consider offsetting some of those transaction processing fees with convenience fees, specifically online payments made by credit card.

Pro tip: You can also use this policy to incentivize parents to enroll in your automatic payments program using ACH, a much less expensive way to collect electronic payments. This has loads of other benefits to your program – check them out!

postcard with Angela quote

Categorizing Your Billing for Essential Reporting

When you categorize your billing into “buckets,” it’s easy to track where you’re making your money – and what’s costing you. This type of financial reporting is essential when performing monthly budget comparisons to ensure your income is on track with the projections in your budget. That way, you’ll know right away whether you need to cut expenses to balance your budget and keep your business operating in the black. Try these basic billing categories for your childcare program:

Tuition Fees Penalties Credits
Full-Time Daycare Registration Late Pickup Referral Credit
Part-Time Daycare Activity Fee Late Payment Sibling Credit
Preschool Supply Fee Out-of-Contract Employee Credit
Beforecare Technology Fee Returned Check Tuition Discount
Aftercare Administrative Overtime Scholarship Credit
polaroid of Anthony

Communication is Key to Building Long Term Relationships

When it comes to billing and payments in the childcare business, communication is key. Making sure your policies are documented and accessible to parents will go a long way when you have to enforce them and charge the fees associated with them.

Be upfront about what you charge. Today’s parents want to understand what they are paying for and why, so be clear about all of your fees by providing a list of them to families and discussing them prior to enrollment. You can also include this information as part of orientation paperwork or an important page on your organization’s website.

These billing best practices can take a new childcare business from beginner to winner and keep an established program going and growing. Be sure to check out the links for more great resources!