Child care is an intensely customer-facing business and one built on trust. You are looking after people’s children, and you have extensive face-to-face contact with parents. This makes it all the more challenging when parents don’t pay. You still have to greet them each day in a friendly way, and discuss their child’s progress, while knowing that behind the scenes you’re having to escalate measures against them. No one wants to get to the stage of having bad debtors. You should of course do everything you can to avoid it. But at some point, you may have to call in your debts in a more formal way.
After all you are a business, even if it all feels like "one big family" with the parents and children who attend. You have yourself and your own family to consider. Once you’ve assessed that a debt is going bad, and final demands have been ignored, it’s time for action.
1. Send a solicitor’s letter
The first step is to have your solicitor send a standard debt payment letter. Many people take "official" legal letters more seriously. They also give more weight to letters that arrive in the post, rather than email.
2. Negotiate a payment plan
It’s worth arranging a face-to-face meeting with parents who are failing to pay the fees. If a family is suffering financial hardship, you can negotiate a repayment program with them. They may be able to pay the debt in instalments. Even recovering part of the debt is better than nothing.
3. Debt collection agency
If there’s no response to a solicitor’s letter and attempts to met or negotiate a payment plan fail, then the next step is a debt collection agency. You should consider referring debts as low as $50 for collection: don’t let the bad debt spiral.
Look for an agency that offers a "no recovery, no fee" policy so you don’t end up out of pocket if there’s no result. Usually agencies take a percentage of the debt recovered as their fee.
There are agencies that specialise in collecting debt for child care centres, and may even offer credit reference checks. Of course with new parents who are using a child care centre for the first time, such information isn’t always available.
4. Take legal action
If the collection agency can’t recover your debt, you may need to take legal action against the non-payers. The cost of this needs to be weighed against your chances of recovering the money, so discuss it carefully with your solicitor before taking action.
Each State and Territory has its own "small claims court" or tribunal, generally a division of a local court. You can find the details for your respective one here. There is a ceiling on how high your claim can be, ranging from $5,000 in Tasmania to $100,000 in Victoria and there is usually a small fee for filing a claim. You don’t need a solicitor and even if you do have one, you probably won’t be awarded legal costs.
Some of the issues you should consider before suing are:
- Can the debtor actually pay? Are you one in a long line of creditors?
- Do you have strong evidence to support your claim of non-payment?
- Could you settle out of court rather than spend time and money on legal action?
If your accounts are in order then you should have no problem substantiating your claim, but even if you win you still may not get any money if your debtors are declared bankrupt.
For more tips on how to stay on top of your child care organisation’s finances, download our free ebook ‘Child care services: Getting smart with fee payments’ by clicking the button below.