Analysis: Getting tough on non-payers

Tuesday, May 19, 2009

What can nurseries do to get the fees owed to them, when they are so unlike other creditor businesses? Annette Rawstrone hears solutions.

Non-payment of nursery fees has long been the bane of nursery owners' lives, but these tough economic times are spurring them to be increasingly firm with parents.

Parents struggling to pay nursery fees was cited by childcare providers as a major threat to sustainability in a recent survey done by The Consortium exclusively for Nursery World (News, 9 April), while Laing & Buisson's report Children's Nurseries 2009 found that there was a clear increase in nursery closures as businesses struggled to service debts (News, 23 April).

Nursery owners have turned to each other for advice on Nursery World forums ('Have your say', and the National Day Nurseries Association reports an increase in debt-related queries to its free legal helpline since late autumn, which it attributes to a number of factors, including the recession. 'Some parents are struggling financially, which has had an impact on their ability to pay childcare fees,' says NDNA chief executive Purnima Tanuku. 'In some cases, due to rising costs and a need to keep fee increases in check, nurseries are experiencing cash flow issues and therefore have had to look at collecting in all outstanding fees, especially from parents who may have been unresponsive to payment plans.'

Low priority

Many nursery owners express great frustration that childcare fees are often low on parents' financial priorities. 'Not paying nursery fees seems an easy option,' comments David Holmes, manager of Munchkins Day Nursery in Shard End, Birmingham. 'If someone has not paid for food in a supermarket then they are not allowed to take the food, if they fail to pay for petrol then the garage holds the car, but we obviously can't stop parents from taking their children!'

Marcelle Kite, owner of Halesfield Day Nursery in Telford and chair of a children's centre nursery, believes that the caring relationship that nurseries build with parents can make it very difficult to tell them that they must repay debts. 'At the heart of it is that some nurseries are too nice and worry what will happen to the children or family if they stop the place. It is seen as the nursery's responsibility, when really it is the parent's responsibility,' she says.

Katie Porter, managing director of Little Ones Childcare, which owns and manages five nurseries in Devon, has heard any number of excuses. 'The best one was that this mum couldn't pay because she had spent all her childcare money on holiday. She joked that didn't she have a great tan!'

The chain has recently tightened up its fee collection policy. Fees are charged monthly in advance, with parents required to sign on receipt of the bill. After seven days of non-payment, staff gently remind parents every morning and evening. After a fortnight, entry is refused. Ms Porter says, 'It is the hardest thing in the world to do, turning away a child who is waiting on the doorstep, but why should we give away free childcare? I have to pay my staff and buy food and pay the rent.

'What normally happens is that they go to the cashpoint and return with the cash. We allow them in with the money and ensure they pay the remainder the following day. I do think that the "short, sharp shock" works and these parents do tend to pay on time the following month!'

Payment plans

Lost revenue due to non-payment of fees can amount to more than £4,000 a year at Bright Stars Nursery in Edmonton, north London. Three levels of payment reminders are sent out. Owner Claire Gopoulos says, 'The third level is that we are unable to take the child into nursery. But we are very careful to only send out the third letter once we feel that we have done all that is possible to organise payment with the parents. We are flexible and reasonable, and parents are on different payment plans according to their circumstances. I need to be quick to respond to non-payment. It is a very time-consuming job.'

Like many childcare providers, she reports that taking County Court action or using debt recovery companies is often futile, with the most common outcome being added court fees and increased administration to the nursery's burden. 'We have never done County Court Judgements (CCJs) because it takes a lot of time to apply and get sorted,' says Ms Gopoulos. 'The outcome would then be that they pay around £1 a week, which would take hundreds of years to pay off, so what's the point? Debt recovery companies have not been a success either.'

Munchkins Day Nursery has had 'mixed success' in reclaiming debts. Mr Holmes says, 'If parents are professional then they do not want their name dragged through the courts, but parents in average jobs don't care. CCJs or bankruptcy do not hold the same stigma that they used to. Bailiffs can only recoup money if the parents have enough property of value that they can sell. They can't take the family car or computer if it has been purchased with a finance agreement, and furniture does not sell.'

He actively networks with other nurseries to warn them if parents have left owing money, to stop non-payers clocking up further debt in the area.

Tax credit victims

Katie Porter believes the scale of parental debt would be greatly reduced if childcare tax credits were paid directly to the provider, considering that some parents have up to 80 per cent of their childcare costs covered by the Government. The current system is 'ludicrous', says Ms Gopoulos.

'We operate in a low-income area and a lot of the parents get child tax credit. In some cases we just don't receive it,' she explains. 'The parents take the money, move on and leave the debts behind. Student finance payments are also often not passed on to us. We have £1,500 debt at the moment from a parent receiving student finance.'

She is thankful for Bright Stars' waiting list, which enables places to be quickly filled. 'If we could not do this and had to suffer losses with child places then I think we'd be in severe financial difficulty.'

There is no redress for this form of tax evasion, says Ms Kite, and nursery owners are left victim to it. 'There are no check-ups to confirm that the tax credits parents receive are spent in the right place. If the Government looked into this, it'd knock all the MPs' expenses into a cocked hat!' she says. 'I think the Government should provide tax credits through a system like the childcare voucher scheme so there is no option but to use the money for childcare.'

She has found Telford local authority supportive towards providers, with 'Beat the credit crunch' sessions aimed at giving nursery owners financial information to pass on to parents who are having difficulties.

A similar scheme, called 'Helping parents to afford childcare', is being run by Brent Council in London to encourage and assist providers to be sustainable. Brent Council business support officer Raymond Whyte explains, 'We try to emphasise to provides that they are a business and need to be paid for their services and we encourage them to ensure they are being paid. Debt affects the nursery's cash flow and makes it difficult for providers to effectively manage their business. If nurseries do not operate on a cash basis, then they expose themselves to risk and in this climate it is something nurseries can ill afford.'


'Take control in tough times' by Robert Collier (Nursery Management, 5 March 2009)

NDNA advice

It is vital that a nursery business:

- has a firm but fair approach to debt

- has a clear policy and procedure that emphasises the need for timely payments

- demonstrates support for parents in financial difficulty, for example the use of repayment plans

- informs all parents about the fee policy and approach and, crucially, enforces it.

'It is not often easy to have a conversation about outstanding monies with a parent, but you must not let it become an issue that will ultimately threaten your sustainability,' adds NDNA chief executive Purnima Tanuku. 'All nurseries need fee income to stay open and pay staff, and you should not be afraid to emphasise that childcare is an essential, equal to any other bill.'

- See 'To the point', page 12

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