Maximising school fees debt recovery
6 January 2022
All fee-paying schools will have experienced some problem with school fees debts at one time or another. It may only be a handful of debts, but they inevitably lead to an inordinate amount of management time being spent and sometimes the need to involve lawyers.
As Oscar Wilde once said: "A man who pays his bills on time is soon forgotten" but as many Bursars and Heads will know from experience, parents who regularly and repeatedly don't pay the school fees on time, may become very well known to the school office!
What can schools do to avoid bad debts and to maximise school fees recovery?
- Have a clear and enforceable parent school contract.
Prevention is often better than the cure so the starting point is to have clear contract terms between the school (identifying the correct entity) and parents. The best way is to have a written Parent School Contract which sets out the terms of the contract, and which parents need to sign on accepting an offer of a place at the school. It is important to ensure that the contract terms comply with consumer protection legislation, particularly the Consumer Rights Act 2015.
If both parents are responsible for the payment of fees, ensure that each parent signs the contract and the contract is clear as to responsibility and liability. A common situation is where parents separate/divorce and are in disagreement about who should be paying the school fees.
Contract terms should be reviewed regularly and updated where necessary (with appropriate notice given to existing parents). The contract terms can include terms concerning the consequences of late payment of fees (i.e. interest) and steps that may be taken to recover the fees (such as court proceedings) including claiming legal costs.
- Ensure invoices have clear payment terms.
As a corollary to the above, it is important that payment terms on invoices are clear and match any terms set out in the Parent School Contract. The due date for payment should be stated and information given as to how payment can be made.
- Keep on top of missed payments.
Sometimes there is a reticent in chasing for payment, however, the key to stopping bad debts accumulating is to take steps as soon as a bill is not paid on time. Communicate with parents – have a conversation or meeting to find out why a bill has not been paid. If the parents are experiencing financial difficulties, it is better to know this as early as possible to determine a way forward. A record should be kept of all oral conversations whether over the phone or at a meeting and it is good practice to follow up a phone call or meeting in writing to confirm what was discussed/agreed. Care should be taken during phone calls or meetings not to make any inadvertent promises as to what the school will accept/do a propos the debt, for example, inadvertently agreeing not to enforce a contract term.
- Consider offering flexibility.
Have a clear policy on what payment options can be offered to parents (either to all parents or when parents are in financial difficulty). This could be to offer instalment payments or a short payment break. Schools could also offer a discount on fees paid in advance. There should, however, be no "favouritism" – parents talk to other parents so any payment option may need to be available to all parents or when certain criteria apply. Care needs to be taken, also, to ensure that the school complies with consumer credit legislation where applicable.
- Ensure the FILON position is transparent.
One of the most common debt issues which arises for schools is parents refusing to pay "Fees in Lieu of Notice" (FILON). Most schools require a full term's notice to be given to withdraw a child from the school or alternatively a term's fees in lieu of the appropriate notice being given will be payable. The FILON terms in the contract should be transparent and easy to understand as to when notice needs to be given and how (and should comply with the Consumer Rights Act 2015). Schools may want to consider reminding parents of the withdrawal terms from time-to-time, and confirming the date by which notice is required to withdraw a child at the end of an academic year (discretion is advised in this regard as it may prompt uncertain parents to give notice).
While the above will help, bad debts are unfortunately inevitable, particularly given the present economic uncertainty following the COVID-19 pandemic. If a bad debt does arise, a school will need to make the difficult decision whether to pursue formal debt recovery steps or to write the debt off. Please do get in touch with the Debt Recovery Team for more information.