Accounts Receivable Management: Effective Policies and Practices for Difficult Times
Collecting payments due from parents has never been more important than it is in these difficult economic times. More often than not, schools have effective policies in place but are not enforcing them consistently, causing difficulty with cash flow management and spending the time of owners and Directors on collections. This extra effort is time that owners cannot afford to be wasted when there is much to accomplish in strengthening programs and services to children and parents. The first step in account receivable management is to be sure that an effective policy is articulated and provided in writing to all parents. Most schools have payment policies similar to the following:
Tuition is due no later than Tuesday by 10:00am for the current week of service. After that time, a $25 late fee will be accessed. Students with accounts not paid in full by the end of the current week will be disenrolled and will not receive services the following week.
Note the significant late fee accessed for late payment in the policy statement above. Late fees are the most effective means of encouraging prompt payment and the larger the fee, the more the encouragement! Of course, another way of stating the same concept in a more positive manner could be to state tuition rates higher and give a discount for early payment. The danger to this approach, however, is that stated rates being too high may discourage enrollment from price sensitive shoppers who compare competitors’ rates.
One common question we hear from owners is “I haven’t been enforcing my current policy, what now?”
Again, it is generally a problem with non-enforcement, and not lack of policy, that gets owners caught in managing large balances and putting themselves at risk of losing income when parents leave the center. It is our suggestion that when policies are not enforced, state in writing to parents a reminder of the policy and a notice of pending strict enforcement. Below is an example of a letter that could serve as notice of policy enforcement:
We appreciate the ability to serve your family at our center and value the time that we spend with your child. Because of the increased number of families with balances due and the amount of time spent by our management team in collecting tuition, it is necessary to begin enforcing our current accounts receivable policy so that we can spend more time in program development and less time in collections.
Our current policy as stated in your parent policies is as follows (state current policy).
Effective _______, (four weeks from now generally gives parents enough time to catch accounts up) this policy will be enforced without exception.
Thank you for your support.
Following such a notice to parents, this policy must be strictly enforced to prevent falling back into the same collection issue. It is very difficult to get a system consistently enforced and very easy to fall quickly back into a collection problem!
Another common question that is raised by owners is “How and when do I work with parents struggling to make tuition payments?”
Is there ever an exception to the “no tolerance” policy? In my opinion, yes. The long-term customer who is having an issue and is communicating with you regularly could be considered for special arrangement. Be sure that the special arrangements are in writing and are followed-through. Be very wary of the family that sends Grandma in to pick up their child to avoid seeing you and who does not communicate with you regularly. This is not a good candidate for special allowances!
Now that collections are under control, can you relax? Absolutely not! Collections of accounts receivable is a challenge that will remain a weekly task that must be managed constantly and consistently. NEVER hesitate to ask parents for prompt payment. Remember that it is your stewardship to not only provide for the children entrusted in your care, but to act as a responsible manager of your center’s resources, including taking responsibility for collecting and managing tuition paid by parents. This includes collecting funds timely, controlling wasteful spending, and using available cash for strengthening children’s early education.