Put away your brass knuckles, there’s a better way to collect outstanding childcare tuition. First and foremost, follow these two simple rules for tuition payment collections:
- Be consistent. The rules apply to everyone and by enforcing them consistently, you’re keeping it business. It’s not personal, it’s business.
- Be strict. Going the extra mile to be flexible and accommodating seems like the right thing to do sometimes, but it’s a great way to set yourself up to get burned.
So what’s the best way to ensure you are collecting fees on time and recovering outstanding balances when you’re not? The majority of childcare, preschool and aftercare professionals agree that communication is the key, and it starts at the very beginning with your service contract.
When parents enroll children in childcare, preschool, aftercare or K-12 programs they usually complete a myriad of paperwork – emergency contact information, medical information, photo permission forms – all the things you track as a childcare provider.
But the most critical piece of paperwork they’ll sign is your service contract, which outlines the services you will provide, as well as payment terms. When parents sign this contract, they are acknowledging and agreeing to those terms.
That’s why it is so important to spell out the fees and policies for tuition payments and collections in your service contract. Make sure it includes the following:
- The security deposit – Carefully explain when it is due, what it covers, when it will be returned, and what happens to it if there is an outstanding balance.
- The late payment fee – How much is it and when will it be assessed? Is there a grace period? If so, how long is it?
- The second late payment fee (and any more after that) – Some childcare, preschool or afterschool centers will end their service contract after a second or third late payment. If yours includes this policy, make sure it is clear.
- When services will be suspended for non-payment – Most families who have a child in daycare, preschool, or aftercare need those services in order to work outside the home. Let them know early.
- Collection efforts after the fact – Make parents aware that the legal or collections agency route is a possibility; no one wants a poor credit rating!
On-the-go parents can drop balls now and then
Parents are busy, and sometimes, they get so swept up in the logistics of work, after-school activities, and life in general, they forget to pay.
Enter Blake. Blake and her partner both work full time – and Blake travels a lot – but they are usually very organized. They don’t live paycheck to paycheck, and they are always on time with tuition, fees, and whatever else needs to be sent in or returned.
Last week, Blake’s flight was delayed, and with the scramble to figure out new travel routes and the logistics of pickup on Friday, she forgot to pay. As soon as she received the late fee notice you sent Monday morning, she called.
“I’m so sorry. With everything going on last week, it completely slipped my mind. Is there any way you can remove the late fee?” she asks.
What would you do?
Use your service agreement as your guide. Whatever payment collections steps are outlined in that document, you should follow at all times. It’s business, not personal. That said, it isn’t a bad idea to allow for one late payment fee waiver per year, especially in cases like this.
This one-time courtesy to parents often creates good will, and it’s a great opportunity to suggest that Blake and her partner enroll in automatic payments. Being able to “set it and forget it” takes one more thing off of their lengthy to-do lists each week, and late fees will no longer factor into the equation. In fact, if it happens a second time, it might be nice to leave enough wiggle room to say you can only waive that fee again if Blake enrolls in your autopay program.
Accidents happen, and so do short term financial problems
Introducing Drake. Drake has two children currently enrolled in your center, and two others who have matriculated through your program and moved on to bigger things. Drake has never missed a payment. In fact, he has never paid late. However, a recent automobile accident sidelined him from work for several weeks, and his family is struggling to make ends meet. They need a few weeks to figure things out, maybe a month, tops.
What would you do?
This is a tough one. Drake and his family have been loyal customers for years, and you want to help them out, but you can’t allow them to pay nothing, can you?
If you plan and budget for these types of scenarios, you might be able to. If your organization provides room for a scholarship fund in the budget, you can allow for situations just like this. While some centers and schools dole out need-based aid in the beginning of the school year, it’s a good idea to leave some room for special circumstances. If you don’t need it, great! Start your scholarship fund off with a nest egg for next year, but when you need it, it’s there to provide a cushion for both you and the family in need.
Sometimes, those little balances mean big debt
Meet Jeanine. Jeanine has accumulated a large balance for several weeks of full-time childcare. She’s not one for paying on time, but she does pay eventually. This time is a little different. Each week, she promises to pay the following week, and her balance has ballooned to the point where it’s bad for business and feels insurmountable to her. A lump sum payment to clear the balance isn’t realistic, but you know she needs childcare in order to be able to work. She’s started avoiding you at dropoff and pickup, until finally, you catch up to her.
Can I pay you when my income tax check comes in?” she asks. “I’m getting enough back to be able to cover it.”
What would you do?
Before you agree to this (and avoid the rest of an uncomfortable conversation), ask yourself how many other creditors and service providers she has promised to pay with that same money.
Agreeing to this means you’re willing to continue to provide services despite the very real risk of never collecting that tuition. Just say no. I’m sorry, but no.
Instead, set Jeanine up with a manageable payment plan. Calculate her outstanding balance and any late fees she has accumulated, and divide it across an amount of time that makes the payments affordable to her while making sure she’s paying down her balance each week.
Feeling generous? Remove a late payment fee. Negotiate removing half of them if she enrolls in autopay, but leave some on the tab to ensure she understands that the rules apply to her, too.
Saying goodbye doesn’t have to mean a write-off
So long, Anthony. Sometimes, things just don’t work out. When a child leaves your program due to graduation, a move, a changing commute, or just a bad fit, sometimes you are left with an open invoice.
What would you do?
You catch more flies with honey than with vinegar, so leave the legal route as a last resort – after all, you’re looking to collect money owed to you, not destroy someone’s credit. If you can make arrangements with Anthony for a payment plan before his child’s last day, do it. If you can get him to sign off on coordinating those last few payments using autopay, that’s even better.
Continue communicating with Anthony regularly, and keep it friendly. Ask about the little ones and how they are doing in the new situation. Anything you can do to keep that connection alive is a good thing.
When the communication stops, it’s time to make a decision. Do you go legal, or do you write it off? If the balance is significant to your bottom line, the decision is easy. You need the money, and you need to send a message. Get legal help. If it’s not a substantial amount, decide whether the time you’ve already put into collecting and the portion that will now go to the collections agency makes it worth pursuing. If not, write it off – at least you can expect a tax benefit from it.
- Require a security deposit equal to one billing cycle for the services you’re providing. This way, if a family leaves without notice or has an outstanding balance, you can apply that security deposit to the account. It may not cover the whole thing, but it helps.
- Outline payment terms and actions you’ll take in your service contract. This way, you can always refer back to it when talking to parents and when sending notices. If you are considering engaging a third party to handle collections, this is critical to their efforts as well.
- Bill BEFORE services have been provided. Unlike other bills like cable or car payments, you can’t shut off or repossess the time invested and services provided after care has been given. Billing in advance protects you and your bottom line.
- Send those reminder notices as soon as the due date passes. The income from tuition and fees is what keeps your business running. Therefore, posting tuition, sending invoices, and reminding parents when bills are past due are critical.
- Bounced checks? Assess the Returned Check Fee to the account immediately and send a notice that payment must be received in full – and in cash – by the end of the business day. Another option is to require enrollment in your automatic payments program, but keep the Returned Check Fee on the account. The bank isn’t going to waive what they charged you, and it is bad business to eat it.
- Assess late payment fees on the day after any grace period ends. Sometimes it seems easier to give it an extra day so you can avoid the extra work applying late fees. Resist that urge, and be consistent with those fees every time.
- Develop a plan to handle late payment fee waiver requests. They’re inevitable. No one likes paying more for something they could have gotten for less, so be prepared with a set policy that empowers your staff and gives them guidelines for what to do next.
- Take swift, decisive action based on your service contract every time, and don’t hesitate to suspend services when it is warranted. If you don’t get paid, you can’t pay your bills, including payroll. If you can’t pay your teachers, they leave. When they leave, your business folds. So be strong and consistent when enough is enough.
- Offer payment plans. This goes for families still in your program who are a little behind, as well as families who have moved on despite an outstanding balance. The most important thing here is to keep the lines of communication open to give yourself the best chance at getting paid.
- Make it clear that negative credit reporting and legal measures may be used to collect outstanding fees, but try to avoid that whenever possible. After all, what’s the goal of your collection efforts? Collecting money you are owed. And when you engage a collections agent or attorney to do your collecting for you, you’re essentially agreeing to only collect a fraction of what you are owed. Economically, it makes better sense to settle balances amicably.