UK: Independent Schools, Avoiding Debts - Prevention Is Much Easier And Cheaper Than Cure

Last Updated: 16 October 2013
Article by Bernard D'Monte

Another new academic year has started and one of the many issues for an independent school is the efficient recovery and management of school fees which are the bread and butter of any school's income.

The efficient recovery of school fees is particularly relevant when the UK is recovering from the worst recession since the 1930s and many businesses are struggling to survive. This article should serve as a timely reminder that as well as providing an education service, an independent school is also a business.

It will be no surprise to hear that the best way to avoid debts is to try and prevent them from arising. However, this is sometimes easier said than done when, for example, a school already has a parent with financial problems and a debt has been allowed to accrue. This guidance is therefore in two parts; how to avoid debt situations and what to do when things go wrong.

Avoidance

The first step is to ensure that the school's terms and conditions, which form part of the parent/school contract, enable the school to run its business as efficiently as possible.

Ensure there is joint and several liability of parents/ guardians when signing up to the parent contract, so that either parent can be pursued for the full amount of the outstanding school fees. This is particularly useful if the parents are separated or divorced.

Insist on direct debit for payment of fees and do regular checks to ensure all parents have paid on the due date. The checks can be done by termly desk top computer alerts which automatically send a message to the bursar when a direct debit is not received. The alerters cut down on administration time and will ring alarm bells if payment is not received on the due date.

For new pupils, request half a term's fees up front when parents accept the school's offer of a place – this should be non-refundable unless the school can fill the place. In this way, if the parent has second thoughts after acceptance and withdraws the child prior to the start of term, the school will be covered for its loss. If the school then manages to fill that place at short notice and there is no loss to the school, the school can refund the deposit at its discretion.

Obtaining as much information as possible from parents will make it easier and more effective to take any necessary enforcement steps when things go wrong. When dealing with new parents or reviewing details for existing pupils/ parents make enquiries of the parents as to contact details, and home and work addresses. If parents are separated, then obtain individual addresses and contact details including email if possible. Employment details should also be obtained and if parents are self-employed make separate enquiries regarding earnings expectations and actual earnings for the last year or two.

When things go wrong

Inevitably, the safeguards above will not always work and even the most efficient bursar/ credit control system is fallible. The key here is to keep the debt situation under review and to recognise when the parents are not cooperating fully or are in a genuinely difficult financial position.

Having recognised that a debt has accrued, it is important to do something about it quickly.

If there is default on one term's fees, contact the parents and ask why the payment is delayed. By engaging with the parents (if they will allow it) it may be possible to identify whether there is an underlying reason which may cause further problems. A common cause is that the main salary earner has been made redundant, their business is failing or the parents are separated or getting divorced. Try and ascertain when, and if, the income stream will resume and whether that expectation is realistic.

In the event of the parents being in default of more than one term's fees it might be worth considering more punitive steps such as charging interest for late payment, seeking guarantees from parents or grandparents, or requiring realistic monthly instalments which pay both arrears and current dues. If it is clear that there is no realistic prospect of the debt being cleared within a reasonable time frame it might be necessary to liase with the headteacher and consider excluding a child. It is understood that a school will only wish to consider exclusion as a last resort, where all other alternatives have been tried and have failed, but unscrupulous parents may rely on a school not proceeding to exclusion to avoid paying the fees when they are capable of so doing.

Most schools will already have a credit control system in place to deal with bad payers and/or debt situations. There should be no more than two letters from the school to demand payment before a view is taken as to how the matter will be pursued.

Effective credit control can be easily influenced by parents who have experienced bereavement, job loss, separation/divorce or the collapse of a business. It is sometimes easy to overlook the fact that a school is also a business which is dependent on a reliable and timely income stream. Use all the tools at your disposal to identify the genuine hardship cases - they are usually the parents who cooperate fully with the school's enquiries. Then try and agree a mutually acceptable solution eg payment by instalments with regular reviews and a realistic strategy in the event that one or more instalment payment is not paid on the due date. Also consider taking security for the debt by way of a legal charge on the parents' house. In cases where parents do not cooperate or where it is difficult to see a resolution to the problem, we would advise a more commercial approach to recovery.

This note is general in terms and content. Each set of parents and situation is different and will require a particular approach/solution to enable effective recovery.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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