Show me the money

Fee collection is one of the most critical functions of the bursary, with several methods available to schools. David and Helen Belchamber argue the case against early collection methods on monthly payments

It is well known that the cost of educating a child for 15 years at an independent school can equate to the cost of buying a house, a small one for day fees but a large one for boarding. As a result, there are now few schools that do not help parents by making it possible to pay fees monthly, either by offering an inhouse arrangement or by outsourcing it to a company that offers parents personal loans for this purpose.

In either case, the criterion to compare performance is the school’s requirement to receive fees “in full on or before the first day of term”. The school should ensure that the needs of the school take priority. Governors, heads and bursars are stewards of the school’s finances, not of their parents’.

Inhouse arrangements
Many schools offer their own instalment scheme, but the following points should be considered:

• extra work is created, which means extra cost;

• the school's cashflow will be adversely affected, especially if no charge is made;

• needless inconvenience is introduced by early start schemes; and

• there is the likelihood that the scheme will be subject to the provisions of the Consumer Credit Act (CCA).

Solicitors advise against schools offering 10- or 12-month schemes: Farrer & Co describes them as “cumbersome” and advises schools to outsource (“in our view the most straightforward option”) and Clifford Chance comments that “the requirements of the CCA are stringent and can be onerous, particularly to those who do not operate the provision of credit as their mainstream business”.

Veale Wasbrough points out that many schools unwittingly offer inhouse instalment schemes that are regulated by the CCA but do so without the requisite licence from the Office of Fair Trading. Since this amounts to unlicensed trading (a criminal offence) and may render the agreement unenforceable against parents, schools need to take professional advice if they have not already done so.

Outsourced schemes
Banks offer personal loans, but these are for 6 or 12 months and can be expensive. There are a few credit companies that offer fully funded instalment schemes and, if these leave the school in exactly the same position it would have been in had it received the fees from a parent at the start of term, they are worth considering.

Variations on the standard scheme, designed to make credit as cheap as possible for parents but which disadvantage the school, should not be considered.

These include starting one or even two months early, thus combining maximum disadvantage with the possible worry about what would happen should the company fail, with a number of parents already having paid out half a term’s fees. Collecting from parents at the start of term but delaying payment to the school allows the rate to be reduced, but the school’s cashflow suffers.

One scheme even requires the school to increase its fees by, typically, 0.5 per cent in order to pay the cost of providing credit at nominal cost to the parent. A solicitor has pointed out that such schemes might be inconsistent with a school’s charitable status since the cost of credit was being subsidised by those paying in the traditional way. Even if this does not conflict with charitable status, it is inequitable and will cost the school a great deal more to collect its fees than by adopting a scheme where the parents pay a fair charge for credit.

If you offer an inhouse scheme, take specialist advice to avoid being caught by the CCA. If you outsource it, keep things simple and remember that the school’s needs must come first.

This article is intended to provide general guidance only. Nothing contained in the article constitutes legal or other professional advice.

David and Helen Belchamber co-run Peripatetic Bursars. David and Helen can be contacted on 01985 851 083. This article is a precis of a Guide to Monthly Payment that can be obtained free, either electronically or as a hard copy, through contact@peripatetic-bursars.co.uk

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