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Costs: Part 6: Recovering Fees - In your debt

How can settings protect themselves from incurring unpaid fees? Is there any way to avoid taking bad debtors to the small claims court? Karen Faux reports

Because children ultimately stand to lose the most when parents leave fees unpaid, many nursery owners and managers have tended to shy away from getting tough on debts. While responsible practitioners would always prefer to preserve a child’s nursery place, a climate of worsening debt is forcing them to take a harder line.

Sarah Henderson, manager at Westover Pre-School in Portsmouth, says, ‘The child’s wellbeing is the focus and we would ideally always want to see them continuing to access their sessions. However, with a growing experience of debt, we are having to cut debts off and recover outstanding amounts at a much earlier stage.’

Westover Pre-School is a charity-run, pack-away setting that operates from a scout hall, employing eight members of staff, and accommodating a maximum of 30 children in its morning and afternoon sessions. It relies on fundraising to top up its budgets and it does not make a surplus, so debts very quickly threaten its viability.

It was recently forced to address a bad debt arising from a single mother with four children. ‘Between them, all the children were entitled to either the two-year-olds’ funding or the 15 hours, and were paying for an extra day,’ says Ms Henderson. ‘Non-payment for the extra day started to mount up to thousands over many months and eventually we offered the parent a payment plan.’

This included incremental amounts for what was owed, on top of continuing to pay for the extra day. ‘The parent agreed to this and it was OK for a couple of weeks, but then it lapsed,’ says Ms Henderson. ‘In the end we had to take it to our committee, and in August one of the members, who is a solicitor, arranged for it to be handled through the small claims court. The court is now chasing the money for us, and we don’t have to do anything, but I’ve no idea how long it will take.’

TAKING ADVANTAGE?

More nurseries are experiencing ‘substantial’ debts – that is to say, those which run into thousands of pounds for unpaid daycare. Even for those experienced in chasing money, current levels are presenting challenges.

At Rowner Family Centre, which runs a full daycare service, a packaway pre-school and out-of-school provision in the Gosport and Fareham area of Hampshire, the approach is to become ‘a lot stricter’. Operations manager Nicci Atkinson says 23 families owe the centre money. ‘We operate in an area of deprivation and we have always had bad debts. We have seen these arising from families trying to juggle Universal Credit and being caught short when they don’t receive the amount they expect. We are also still seeing the after-effects of the recession, with parents out of work, and we have families taking the funded hours, and hours on top, which they can’t afford.

‘Currently we are chasing 23 families across our three settings for unpaid fees. These have a debt which exceeds £1,000 and the situation is compounded by the fact we have a lot of twins and siblings who are duplicating the debt. We also have parents who are not typical, who just decide they are not paying and take their children away.’

She reports that while her organisation has always been flexible with payments, allowing parents to pay back small amounts over a period of time, she feels that more are taking advantage of this goodwill. ‘So we have put in place a harder procedure,’ she says. ‘We have now introduced a four-step process as part of our families’ registration. In the first instance we write to them and put a payment plan in place. If this gets no response we ask them to come in for a meeting. If they still do not engage, our committee directors decide what to do next, and the last resort is debt collection through an agency.’

Miss Atkinson adds, ‘All of this is very new to us. The debt collection agency takes 20 per cent of what it gets back. We are taking this action because we have no alternative. When parents get into financial difficulties, settling nursery fees is at the bottom of their list of priorities. We have 50 staff and our costs have gone up. We are passionate about CPD, and we are paying for this ourselves, which means we cannot carry the burden of unpaid fees.’

CREATING TRANSPARENCY

The NDNA’s early years advisor, Sue Asquith, recommends ‘proactively getting a month’s deposit up front at the start of a contract, which can then be reclaimed when the child leaves, or is used to pay their final bill. It makes good sense, as a nursery then has a cushion for instances in which parents do not pay, or struggle financially during their child’s time with the provider.’

There is a lot to be said for talking parents through fee structures at the outset, explaining exactly what they are getting for their money, and clarifying payment terms and what happens when fees are unpaid. It is enormously helpful if parents understand the costs that are involved in high-quality care. But often the money side of the business is something that providers do not like to broach with parents, because they want to focus on the needs of the child.

At the Toad Hall Nursery Group, chief executive Ruth Pimentel says, ‘Childcare businesses tend not to “do” money, but you have to. It is really important that providers talk to parents about what they are going to be paying so they do not take on something they can’t afford and potentially get themselves into debt. We use Connect Software to produce an accurate quote on paper, which we give to them, and ask them in a sensitive way if they will be able to afford it.’

For Ms Pimentel, transparency in the way fees are charged is enormously helpful in ensuring that parents take on something they can afford. She says, ‘Historically bills have been annualised, which can be a bit tricky for parents to understand and leave them with a lot of questions that are difficult to answer. We used to do it this way in the belief that it would make life easier for parents having the same monthly amount. Then when we went to the free entitlements, it became even more difficult to standardise bills. Now we have introduced sessional billing, which means all parents can easily understand their bill.’

Sessional billing is based on how many days a month parents take, and they only pay for the days and hours they use, which is something they can calculate themselves. ‘It gives parents a lot of confidence in how fees work, and it also addresses the culture we currently live in where everyone is very keen to check they are not being overcharged,’ Ms Pimentel says.

BILLING SYSTEM

Integrating the 30 hours entitlement into billing systems is not expected to exacerbate the potential for debts, as long as it remains transparent. At Toad Hall, these free hours will be integrated into its existing model. ‘Our Watford nursery is part of the Hertfordshire pilot, where we are able to offer the 30 hours,’ says Ms Pimentel. ‘We will be offering parents sessions in five-hour blocks, and charging for food. Additional days will be added on as they are currently.’

There remains a concern that high demand for the 30 hours could squeeze out non-working parents and force them to take paid-for sessions they can’t afford. But in terms of those working parents accessing the free 30 hours, Ms Henderson at Westover Pre-School believes there is less reason to worry that their additional sessions will go unpaid.

On a personal level, having to chase unpaid fees through the small claims court is something she would rather avoid. She says, ‘It has been a horrible experience, because all I can think about is the children. The parent is still bringing one of her children in for the free hours, and while there has not been too much awkwardness, for us as practitioners it is about balancing our emotional response to the situation with the knowledge it is not our fault.’

CASE STUDY: LITTLE DARLING CHILDCARE, HARROW

Little Darling Childcare is a home-based, childminding setting, established in 2009 by Darshna Morzaria, who runs it along with her husband, Sanjay, and three registered assistants. In the first six years of operating it experienced just one bad debt, but that changed in 2014 when a parent began to run up debts in excess of £4,000.

Sanjay Morzaria says, ‘We always see things from the child’s perspective and have always enjoyed good relationships with parents. But when it got to the point where we were owed four months’ fees, we decided we had to pursue the debt. Eventually we had no choice but to go through the small claims court. After the file was lodged in August 2014, the family issued a serious allegation about our setting that could only be handled by the high court. Because this could not be substantiated, their solicitor withdrew it. But this delayed our case; the claim was eventually settled in August 2015.’

However, Little Darling Childcare did not reclaim all that it was owed, because of a contractual error. Mr Morzaria says, ‘We were only awarded half the amount because the contract was negated. The mother had taken the childcare place because she was going back to work, and was on a three-month probation period. She said that she could not be held to our contractual one-month notice period, because she did not know whether she would be kept in her job. In order to be accommodating we agreed, in a separate email, to waive the one month’s notice. The contract did not stand up in law because we forgot to go back to it after three months to reinstate the notice period.’