Late payments: Running dry

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Nursery owners around the country are struggling to pay their staff because of late 30 hours payments from local authorities.

On 30 April, Cherry Newnham, manager of Monkey Puzzle Day Nursery in Hampshire, was told that her summer payment of £32,000 would be late.

She says, ‘We are absolutely relying on that money landing in our account. We don’t receive all our fees from parents until the 12th of the month so there is a limited source of other revenue coming in.’

She adds, ‘My remittance says it will be three working days before I receive the money, so please tell me how do I pay a staff team of 20? We’ve only been open a couple of years so definitely don’t have a spare £25k lying around. How do they [Hampshire Council] not realise the implications of this?’

Childminders, who have even less of a financial buffer against late payments, are particularly badly affected. Michelle Richards, a childminder at Buzy Kidz Childminding in Hampshire, says she is £6,000 worse off and is borrowing money from family as a result of a day’s delay to her payment. ‘I have had payments bounce in the past due to not getting paid on time, which then entails a fee being added; however, there is never any compensation,’ she says.

In another case from February, a three-week payment delay meant a Lincolnshire provider had to collect an emergency personal overdraft of £23,000 from her bank. Claire Kenyon, owner of the Children’s Garden Nurseries, says her husband spent three hours trudging through snow to pay money into staff bank accounts manually. She eventually received a one-off emergency payment. Lincolnshire County Council blamed upgrades to its banking system.

Councils have commonly blamed IT systems for failing to cope. A Hampshire County Council spokesman says a ‘one-off technical issue’ with its payment system was to blame. ‘We notified all Hampshire providers to make them aware of the issue. Furthermore, we made special arrangements for those providers who contacted us,’ he says.

Council IT systems are not good at processing software updates, comments Ken McArthur, an NDNA network chair. He says, ‘I understand [that in] most local authorities the IT is old. Problems occurred to some local authorities with a new update for the funding portal and other updates were needed to get the new software to work. It means yet another government IT project not working as promised.’

Problems with late payments have also been reported in Gloucestershire, Cambridgeshire and Kent. Roger Gough, Kent County Council’s cabinet member for children, young people and education, apologised to providers who received payment a day late. He says, ‘We have introduced a new payments system which has resulted in a few difficulties.’

A survey by Gloucestershire early years support charity PATA also found that 89 per cent of respondents (around 86 providers) had received their spring payments one day late. Nearly a third incurred financial difficulties as a result. In addition, the council decided not to tell them about the delay ‘to avoid prompting a high volume of calls that risk further processing delays’.

Tim Browne, head of education at Gloucestershire County Council, says, ‘While we currently make payments in advance, we always advise providers that payments may take up to three days to reach their account and to make sure that finances are in place. Unfortunately on this occasion several errors in the system over the weekend meant payment wasn’t made until a day later.’

Across the country, more than a quarter of providers had not yet received their funding for the previous term, the National Association of Head Teachers found. Its survey, ‘30 Hours – Policy into Practice’, found that only 40 per cent had been paid by the end of the term.

LEGAL ACTION?

Paul Donaldson, the Pre-school Learning Alliance’s director of human resources, says providers can take action. ‘It’s definitely possible for childcare providers to take local authorities to court, and even claim interest, for late payments, provided a timeframe for payment is stated in your agreement, on your invoice or other demand for payment to the local authority.’

However, in some areas, such as Richmond, there is no set date for payments. Many provider agreements have clauses explaining that dates are not guarantees, and warn providers to maintain adequate funds to avoid cashflow problems if payment is late.

Solicitor Andrew Manners, director of law firm Morgan LaRoche, warns, ‘While local authorities will be expected to follow the DfE’s model agreement, the actual payment terms and timings will be subject to the particular terms of the contract with a particular provider. Any remedy a provider may have for late payments and any consequential losses will depend on these particular terms.’

INTEREST?

There has also been speculation that interest payments may be able to be levied on local authorities that pay late. The Late Payment of Commercial Debts (Interest) Act 1998 implies liability for interest in business-to-business contracts amounting to 8 per cent above the Bank of England base rate and a fixed sum dependent on the amount of the debt.

In practice, however, Mr Manners says it depends on the wording of the contract.

‘Public authorities normally try to exclude this act [from the contract], so the provisions of the contract will need to be checked. The default position is that in the absence of any such provision in the contract, the payment is “late” after 30 days for public authorities and 60 days for business transactions after either the customer gets the invoice or the delivery of goods or provision of the service (if this is later).’

Mr Donaldson adds, ‘Because legal proceedings can be time-consuming and create unwanted publicity for settings, they should only be considered as a last resort. Indeed, before initiating proceedings, providers will have to demonstrate to the court that they have already taken reasonable steps – such as letters – to recover the debt.’

Mr Manners suggests uniting may be the best way for providers to take on local authorities. ‘If local authorities are acting in a way which frustrates the provision of sufficient childcare due to a pattern of sustained late payment to the end that providers are unable to provide free places, this may also mean the local authority is in breach of its statutory duty to secure sufficient childcare in accordance with the Childcare Act.

‘The remedies available are probably not best suited for individual providers getting compensated for these sorts of losses, but as a co-ordinated action on behalf of, say, a regional group of providers against a particularly bad late-paying local authority, this could be effective.’

COLLECTIVE ACTION

Hayley Hannan, owner and manager of Roade Day Nursery in Northampton, was warned in advance by Northamptonshire County Council that her summer payment would be two weeks late.

‘We were told our payment due for 25 April would be delayed until 9 May, which for nursery owners is a big thing when staff get paid at the end of the month,’ she says. ‘So a group of us rallied together. We spoke to BBC Look Eastand I wrote to our MP Andrea Leadsom. After that the council made a U-turn and said they would pay.’

Ms Hannan adds the Northamptonshire-based group of nursery owners now meets with the council to discuss problems and how the council can improve. ‘They have been very understanding,’ she says.

A Northamptonshire County Council spokesperson says the threatened delay was due to system updates. ‘We issued a timely communication to our providers to notify them of the issue as soon as we became aware. We are also in the process of carrying out a full review of the payments system following historic issues with payment delays under the old system and are confident this will result in a more stable and reliable payment system.’

Ms Hannan argues providers do not have time to wait for councils to adapt to systems, however. ‘The 30 hours is crippling us anyway,’ she says. ‘We can’t afford delays too.’

MONTHLY PAYMENTS

According to the Department for Education’s model agreement, local authorities ‘should pay all providers, particularly childminders, monthly by September 2018 unless a provider requests and the local authority agrees to continue an existing alternative sustainable method of payment.’

However, Gloucestershire County Council is still deciding whether to pay monthly or termly.

‘While we currently make payments in advance, we will be starting a consultation in May with providers to understand their preferred payment options’, Mr Browne says.

Mr Manners says providers should not be disheartened. ‘While providers may feel they are “over the barrel” with these contracts, local authorities must have regard to the statutory guidance and model agreement, and ensure the provisions of the contract are fair and reasonable.

‘Providers should ensure payment terms are clear and provide for prompt monthly payments such as BACS transfer by a stipulated day of the month. There should be an expedited dispute resolution process provided for, provision for interest at a fixed rate on any late payments, and provision for the local authority to pay the provider’s reasonable legal costs for recovering any sums due under the contract,’ he says.

Mr Manners also recommends providers seek legal advice on contracts or any revised terms or agreements they are asked to sign.

‘We have had numerous examples where a local authority wanted to incorporate harsher terms than those set out in the statutory guidance, and we have been able to secure far more favourable ones in revised contracts,’ Mr Manners says. ‘Providers may have legal expenses insurance covering breach-of-contract claims, and they should immediately contact their broker to make a claim.’

• See 'Council systems can't cope with stretched hours', also in 14th May edition of Nursery World