The topic of unpaid debt in the child care sector is enough to provoke the most even tempered provider into a state of frustration and anger. Here at CareforKids.com.au we often hear from providers frustrated by the system which makes it possible for parents to avoid paying fees, centre hop and still receive the CCB and CCR.

In Australia various companies and databases have been established to help child care providers identify parents who regularly skip paying fees and then change centres. These systems require child care providers to enter the names of serial offenders into a database which other providers can use to check up on parents before accepting an enrolment.

The problem with this system is that providers have to pay to access the information and it requires centres which are out of pocket to enter the details of the parents into the database, which may not help them reclaim their money.

It would seem the best way to deal with the problem of debt is to avoid it. An increasing number of centres are operating on a cash/cheque free basis and operate on a direct debit system where the money is taken straight from the bank account of parents. Introducing this as a centre wide policy with a dishonor fee if a transaction fails would make it much harder for parents to avoid paying fees.

Most early child care service providers will seek to avoid the emotionally challenging step of excluding a child from care in the event of non-payment, however when non-payment starts to effect the viability of the business or reach unmanageable levels then providers need to take action.

The following information will hopefully help you develop a debt avoidance action plan for your service:

Understanding Why Debt Can Occur
Understanding how families find themselves in debt with fees can help providers develop effective policies and strategies. There are usually three main triggers which can create a debt situation. These are:

1. Changing circumstances (divorce, redundancy, bereavement etc)
2. Poor money management
3. Spending behaviour

Debt can slowly build up over time, or occur suddenly, for instance in the case of redundancy or illness. Debt can have a major personal impact, affecting relationships within and outside the family. Sometimes individuals keep the debt a secret from their partner or other family members, hoping it will resolve itself, or through not wanting to cause anguish to others. Child care providers might discover this when approaching a parent who is not aware of financial problems of their partner, resulting, for instance, in bounced cheques.

In the case of families owing money to various businesses, they often expect a more understanding and lenient approach from a child care provider, than for example, a commercial moneylender. Therefore child care fees can be last on the list for families to commit funds to.

Understanding triggers of debt and its impact can help providers develop ways to work effectively with families. This benefits both the sustainability of the child care setting and the family's own financial planning.

While providers can be understanding in terms of personal debt, priority must be given to the sustainability of the child care setting and its continued ability to provide a high quality service for all the children. Serious debt can have a dramatic impact on a service's ability to operate. Encouraging a 'payment on time' culture when a child takes up a place in a setting is essential.

Creating and Encouraging a 'Payment on Time' culture
Providers can help parents manage their payments in very simple ways.

A simple and clear payment structure with clear policies and procedures:
The first step in avoiding debt owed by families is to provide a clear and concise fee structure and policy.

Fees must be set based on realistic occupancy forecasts and sound business planning. When a parent/carer signs a contract before a child takes up a place in a setting, there should be a paragraph in the contract which says the parent/carer agrees to pay fees on time. This combined with a clear Payment of Fees Policy can be a powerful way to prevent and/or minimise debt.

Effective invoicing systems and methods of payment:
It is essential to ask for child care fees in advance, ideally a month, but otherwise two weeks. That gives time for any late payments to be addressed. When a payment is late it must be addressed immediately.

Highlighting fees are late:
Life today is often hectic and parents/carers often can overlook the fact that a payment is late, the following tips may help to highlight this:

1. Talking face to face diplomatically as soon a late payment arises is the best way to tackle what can sometimes be a difficult issue for both providers and parents/carers.
2. Mark reminder invoices with a fluorescent debt sticker to highlight that payment is late.
3. Use a different coloured paper to print reminder invoices.

Using a local solicitor:
Negotiate with a local solicitor to send a standard debt payment letter may be an effective solution to late payment. People may react more quickly to 'official' requests for payment.

Advice about support with child care costs, and sources of help with money management:
Publicising the help available to support child care costs by the use of posters, newsletters and leaflets will inform parents/carers about the options available to them if they get into trouble.

Debt Recovery:
If the unfortunate situation arises when a debt is not paid and all the stages of the fee payment policy have been addressed, a debt collection agency can be used. A number of debt collection agencies work for child care service providers and when making a decision about which firm to use be sure to check their operating practices as heavy handed debt collection agencies could have a negative impact on your service's reputation in the local area.

Debt collection agencies operate on a no collection, no fee basis so you don't need to pay for the service up front. However, before engaging a company make sure you have a clear understanding of what they will take when they collect a debt and shop around to ensure you are securing the best deal.

Remember that people who owe money typically expect to be chased by the organisation they owe money to. Human nature being what it is however, responds much more quickly when a third party becomes involved. Somehow the debt then is seen as being more 'serious' and the requirement to pay more 'urgent'. Using a debt collection agency should be a last resort but an important one to ensure a child care service remains sustainable. Implementing a 'payment on time' culture with parents/carers as described in this information sheet will help to avoid a debt collection situation.

References and Further Reading
Debt Collection for Child Care Services by Cumbria County Council
Families and Child Care Debt: What Providers Can Do by Daycare Trust