School fees: farewell to cheques

Cheques, as an instrument of payment, are in rapid decline. Where does that leave schools in this electronic age? By Norman Crawford

Internet banking can replace the cheque, but will do nothing to improve late payment. The problem is a simple one; manual payment requires the parent to do something, and inaction or lack of discipline invariably results in non-payment. It is reported that up to 25 per cent of parents pay their fees late, an occupational hazard for school bursars and their staff who spend half their lives in credit control. This is avoidable.

Direct debit should not be seen as a solution imposed on parents, rather a superb benefit that parents actually welcome and enjoy using. Direct debit helps their budgeting control and, most important of all, parents are required to do nothing.

The challenge
To create an effective and desirable payment system that virtually 100 per cent of parents will sign up to, make direct debit available free of charge at the point of use. Tuition fees will continue to be billed termly, avoiding any change to your accounting practice, but collected by monthly direct debit. Remember that over 80 per cent of parents are monthly-salaried and over half of all fees are paid out of earned income. Direct debit is a natural response to the needs of parents in the 21st century.

The execution
A BACS commercial bureau service provides all the services your school will need. A commercial bureau will guide you through the process of becoming a BACS originator and provide the necessary stationery. Then, you tell your bureau from whom, when and how much to collect. That’s it; no more late payments.

A typical arrangement delivers 25 per cent of term one fees on July 1, and again on August 1, September 1 and October 1. Thus, 75 per cent of all billed fees are collected prior to any child arriving in class. Hamilton College has 900 pupils and insists on payment by direct debit for all new parents. Unsurprisingly, there are no objections since parents welcome the convenience of monthly budgeting. One-third of all parents already pay by direct debit with no defaults. Direct debit is akin to a financial radar, a continuous health-check on the parent’s ability to pay; so that any problems can be resolved before the start of each term.

School administration
You will need to tell the bureau what fees to collect. A spreadsheet will be fine. Most parents will complete the direct debit instruction online, so there is very little paperwork for the bursary staff to process.

Marketing fee payments
Some schools are now taking a dynamic approach to marketing the affordability of independent schooling by expressing fee outlays in monthly terms. Since most parents are paid monthly, relating fee payments to income helps parents reinforce the decision to go independent. In this age of cutting school costs, we should not forget that adding five additional new children through a direct debit initiative could add £50,000 to the bottom line. In Scotland, over 70 per cent of all independent fees are collected by direct debit and, where direct debit is mandatory, late payers are statistically insignificant.

Loss of investment income
If a small percentage of parents pay annually in advance, encourage them to continue doing so. The remainder should be invited or required to pay monthly by direct debit. A July-June direct debit year delivers a superior result (net present value) than taking payment by cheque and can be self-financing with investment gains offsetting the cost of provision. Direct debit is thus more cost-effective than cheques.

Electronic collection: an elegant solution?
Parents in the 21st century lead busy lives. Writing termly cheques and setting aside funds from salaried income can be a chore. It is not unreasonable for parents to expect schools to be more proactive in making the task of payment easier and friendlier. For schools, however, direct debit will virtually eliminate late payers since funds collected by direct debit are ring-fenced and cannot be redeployed for foreign holidays, unexpected vet bills, and other less genuine excuses.

If you agree with Pareto that you might spend up to 80 per cent of your time chasing 20 per cent of fees, invariably from the same parents each year, then switching to electronic collection can provide an elegant solution, since it meets the precise needs of parents. Planning for electronic collection in 2007-8 year should start soon.

Norman Crawford is managing director of The Fees Company Ltd Edinburgh, a BACS-approved commercial bureau. Norman can be contacted on 0131 449 8845 or at bacs@feescompany.co.uk

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