Fee income is the lifeblood of a nursery. Planning and resourcing will be based upon projected revenues from the number of places filled. It follows that non-payment of fees can hit cash flow hard and affect the stability of the business. Proper control of current and bad debts is, therefore, vital to the success of any nursery. If done early and sympathetically, it is also good for relationships with parents.
The finance director of a group of nurseries once commented, 'It is sometimes easier not to pursue unpaid fees than to fall out with parents, because news gets around.' But the other side of this is a much less helpful message: that the nursery is a 'soft touch' for defaulters. Key elements for dispelling this message and controlling debt are:
* a well drafted contract with parents; l clear and straightforward credit control procedures.
Contracts with parents
Fees list
Update your fees list regularly and send it to parents. Give enough notice of a significant fee increase so that parents can give proper notice of withdrawing their child if the place is no longer affordable.
Registration or admission form
Use the registration form to gather information and gain an early profile of the child and their parents and their ability to meet their obligations under the contract, including payment of the fees.
Terms and conditions
Take care when drawing up terms and conditions. The contract is a consumer contract for the provision of nursery services made between the parents as consumers and the nursery as supplier, which means that the Unfair Terms in Consumer Contracts Regulations 1999 apply.
These regulations were introduced to ensure fairness where standard contract terms are used. If any term of the contract is found to be unfair, it will not be binding on the parents.
We have heard nursery owners say: 'We don't want to give parents a long list of terms and conditions. It's far too formal for a nursery business and may put them off.' The problem with this approach is that if a dispute arises, there are no mechanisms for resolving it, other than by giving in or going to court. But where the business relationship is concerned, it is vital that the nursery retains control. The terms and conditions are relatively unobtrusive among all the other documents in the joining pack but they do need to be there. Typically they cover:
* Definition of the parties The correct legal title of the nursery should be included, together with a definition of the parents and the child. If a contractual dispute ends up in court, you will need to establish precisely who the contracting parties are. Be aware of complications where parents are separated or divorced.
* Definition of fees Make sure that parents understand exactly what is covered by the fees and what will be charged as an 'extra'.
* Responsibility for fees Draft this clause widely so as to include everyone who has signed the registration form, anyone with parental responsibility for the child or anyone who has made payment of fees or extras to the nursery.
* Variation clause This allows for fee rises and other changes to the contract. Parents should be given reasonable notice of increases in fees and of significant changes at the nursery.
* Due date for payment This should state that fees are due for payment in advance, before the beginning of the month or term.
* Interest on late payments I am all in favour of including this in the terms and conditions. This is very much in line with the policy adopted by a great many schools and nurseries - a point made in more bullish terms by a nursery owner who said, 'We want our parents to understand that it is cheaper to bank with a bank than with our nursery.'
* Refund or waiver of fees Be clear that no refund or waiver of fees will be made in the event that the child is absent through illness for a long period or any other cause such as the parents withdrawing their child.
* Notice and fees in lieu of notice Set out the notice period and the method for giving valid notice (for example, in writing). Make it clear that fees in lieu of notice will become payable immediately if the required notice is not given.
This is often a difficult contract term for parents to accept as reasonable. However, the courts recognise that schools and nurseries operate and resource themselves on a termly or monthly basis and the sudden withdrawal of a child may result in significant loss for a nursery. Those parents who diligently pay their fees on time may then have to bear fee rises to make up for this.
* Cancellation of place after acceptance Once parents have accepted the offer of a place and paid the registration fee, a legally binding contract is formed. If the parents subsequently cancel their acceptance before the child enters the nursery, this clause will require parents to pay fees for the first month or term. This helps to prevent parents shopping around for the best deal while keeping the nursery on the hook.
* Exclusion of child while fees remain unpaid You will be able to exclude a child from the nursery while fees are in arrears. However, you must allow the child to return if the fees are subsequently paid.
Don't forget that clauses which are only printed on your invoices may not be enforceable. Make sure that all contractual terms which the nursery wishes to be binding on the parents are included in the terms and conditions and brought to the attention of parents before they sign and return the registration form. Nurseries can save time and money if they adopt a standard form of terms and conditions designed for the nursery market.
Credit control procedures
Nurseries will have developed their own procedures for chasing and recovering unpaid fees, based on the time and resources available for the task. Our experience of fees recovery for nurseries and schools, gained over many years, has revealed three basic principles for successful credit control.
* Start chasing early.
* Be proactive.
* Apply a consistent approach to all parents.
Credit control can be time-consuming, but the following step-by-step procedure has proved to be an effective means of reining in the levels of unpaid fees by applying the above principles:
* Step 1 Issue fees invoices in good time for parents to pay by the due date.
* Step 2 About a week after the due date telephone parents who have yet to pay the fees.
Telephoning parents is more discreet than calling them into the office when they bring or collect their child. Other parents will soon guess the purpose of such meetings. It is important to keep these matters confidential. An informal telephone conversation can often flush out any issues or reasons that parents may have for withholding payment.
* Step 3 If the matter remains unresolved after a further week, send an initial letter to the parents chasing payment within seven days. The tone at this stage should not be too threatening but should encourage contact with the nursery to attempt to resolve the matter.
* Step 4 If the parents still fail to respond, issue a further letter, stronger in tone than the previous one. The letter should refer to their child's possible exclusion and the charging of late payment interest (if the nursery's terms and conditions allow). Give notice that you may start legal proceedings if no reply is received within seven days.
Over time the nursery may see a culture develop in which parents become proactive in contacting the nursery with a problem before fees become overdue. Issues can then be more easily resolved to the satisfaction of all parties.
The message to be conveyed in a gradual and subtle way to parents is, 'Talk to the nursery if there is a problem with paying fees. Help may be available. If you do not communicate, you may face recovery action.'
If, despite the best efforts of the nursery to resolve the matter with parents, the fees remain unpaid, legal action may be the only means of recovering the debt. Nurseries with efficient credit control procedures will have very few cases go to court.
Where more complex legal issues arise, it makes sense to take legal advice.
Several helplines exist and there are lawyers with specialist experience operating cost-effective nursery fees recovery schemes. Most cases will be dealt with as small claims informally in the district judge's chambers without the presence of lawyers.
John Deakin is an associate solicitor at Veale Wasbrough, Orchard Court, Orchard Lane, Bristol BS1 5WS, with many years experience of resolving fee-related disputes for schools and nurseries
