As a childcare owner or manager, it’s no secret that cash flow is a top priority for your business. What is surprising however, is the number of overdue invoices that businesses receive. In a recent study conducted by finance magazine Money in Business, 64% of respondents claimed to have an average of 1-25 overdue invoices each month. Of greater concern are invoices that aren’t paid at all – and it happens all too often in the childcare industry in the form of “centre hopping”.
Centre hopping occurs when families who have not paid their childcare fees leave your centre without paying and move on to the next centre. What’s more, many families make a profit in the process. The Federal Government currently provides a 50 per cent Child Care Rebate (CCR) for parents to cover out-of-pocket childcare expenses. The subsidy goes directly to the parents and not to the centre. As a result, if a parent receives the subsidy and then centre hops, they are essentially leaving with extra money in their pockets while the childcare centre gets nothing.
Although there is no way to totally eliminate the risk of centre hopping, there are definitely ways that centre hopping and losses incurred by centre hopping can be minimised.
Prevent centre hopping at your childcare centre with these steps:
Preventing late payments from the beginning is better than trying to chase payments once they are missed. It is also important to ensure families are aware of your centre’s terms before their child begins attending. This can be achieved through verbal communication and by asking the parent to sign the centre’s terms and conditions to acknowledge their understanding. Our expert tips to improving cash flow in your childcare centre offers insight to improving cash flow and influencing your parent community to pay on time.
Introduce late payment fees
Charging a fee for late payments can act as a motivator for families to ensure they pay you on time. Chasing late payments takes time, so it’s important that you minimise the amount of families you have to call about overdue fee collection.
Request that parents pay in advance
Where possible, get families to pay some or all of their fees in advance. Minimising outstanding payments will minimise your loss if the family centre hops. If the centre requires families to pay in advance before the child attends, the family will be more likely to ensure payments are met. Ensure that parents are fully aware of any such terms and conditions. Ezidebit recommends seeking legal advice to draw up any terms and conditions for your centre.
Network with other centres
There is currently no debt register available to centres of parents who centre hop without paying bills so it can help to stay in contact with other directors in your area. By communicating with other centres, you can understand more about the very few centre hoppers and reduce your risk ahead of time.
Stay on top of any late payments
Late payments are a burden and can create massive issues for businesses that are relying on payments to meet costs such as bills and wages so it’s important to get clients to work with your payment terms. The more a family’s late payments build up, the greater the financial loss if they move to another centre without paying their bill. If a payment request declines, it’s important to stay on top of the missed payment as soon as possible. Not only will it reduce the risk for the centre, a small overdue amount is much more achievable for a family to repay than if missed payments build up.
Create that plan and minimise the risk of centre hopping at your centre
Maintaining healthy cash flow in your centre is vital for staying ahead of your competitors. Following the above steps can help minimise loss incurred as a result of centre hopping. You’ll be suprised how your parent community will enjoy the simple payment options too. Afterall, nobody likes to get an overdue payment phone call.Simple, efficient, automated payments to help you be paid on time can have a dramatic improvement on your cash flow in your childcare centre.