Fees Management

Paper tiger

The cheque is dead; don’t encourage parents to revive this outdated mode of payment. Norman Crawford advocates the case for direct debit with monthly payments

Around a half of today’s parents are first-time adopters of independent education and over 70 per cent are salaried monthly. These new customers rarely pay bills by cheque; most large financial outlays are paid by direct debit and plastic.

The disadvantage with cheques is that parents choose when to write them, with direct debit they don’t, giving bursars the certainty of payment. That leaves only one decision: inhouse, externally funded scheme or both.

Inhouse arrangements
The process can be outsourced to a bureau that can set up and monitor payment formats, issue BACS-compliant direct debit advance notices, re-present any unpaid items and issue failed payment letters, if any. Acting as a lender, a school requires a Consumer Credit Act (CCA) licence.

There are two principal options:

• some schools offer 10- or 12-month schemes that require CCA-regulated agreements, are cumbersome to operate and are best avoided. Unless a school uses compliant documentation, an agreement with a parent may be unenforceable; and

• schools can treat each school term as a separate contract and collect the fee over four monthly payments. An agreement to repay over four payments inside a year is an exempt agreement under the CCA.

The school will still require a CCA licence, but a specialist bureau will usually cover this cost and ensure that procedures are fully CCA- and BACS-compliant. As a concession to parents, you can also collect a termly fee in a single payment.

School direct debit conveys many benefits:

• the school is in tune with parents’ needs;

• parents’ monies are credited to the school’s account;

• few late payments (average outcome for monthly collection is 99.6 per cent);

• cashflow improved (July to June monthly is superior to three termly cheques as 75 per cent of fees are paid before term starts);

• offer the service free of charge and integrate direct debit into the school contract;

• illustrate the affordability of school fees to new parents by expressing fee outlays monthly; and

• minimal administration for the school.

External funded schemes
These schemes usually use CCA-exempt agreements. Originally priced at 4 per cent per term, the product now offers a zero per cent service charge (plus a fixed admin fee of £35 per term irrespective of the size of tuition fee). The school does not require a CCA licence.

The most popular zero per cent offering for parents starts in July, using an estimated fee as a base value. Advanced instalment technology enables the invoiced fee to be incorporated once the invoice is produced. This process ensures that the school receives the payment in full before the first day of each term. Benefits include:

• zero per cent is attractive to parents;

• starting early ensures default is extremely rare;

• the technology leaves school with little to do;

• last payment in June; and

• modern, straightforward online application process. Responsibility for non-payment remains with the school.

Combining plans
If a school prefers payment upfront for monthly-paying parents, and wishes to convert termly cheques to single payment direct debit, both solutions can be operated simultaneously by using a bureau. Since the school is not acting as a lender, no CCA licence is required. Collections are credited via BACS direct to the school’s bank account.

With sustained high interest rates and inflation squeezing disposable income, it is prudent to be proactive and protect your school’s future cashflows and display good corporate financial governance.

Norman Crawford is managing director of The Fees Company. Norman can be contacted on norman_crawford@feescompany.co.uk or 0131 449 8840. A guide to outsourcing school direct debit is available as a PDF or hard copy by emailing info@feescompany.co.uk

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