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The Six Secrets to NoHassle Fee Collection
by Sam Stortz
07/23/10
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The Six Secrets to No-Hassle Fee Collection
Would you like to reduce outstanding receivables, make it easier for parents to pay their fees on time, while dramatically reducing the time you spend managing payments? It may seem too good to be true, but you really can achieve all these benefits by implementing a system of preauthorized electronic fee collection.

What is Pre-authorized Electronic Fee Collection?
The technology exists today to completely eliminate conventional paper checks and to ensure that payments are always received on the day they are due. It's called Electronic Funds Transfer (EFT) and here's how it works: A family can authorize your organization to automatically deduct their fees due from their checking (or savings) account each week or month. If you want, you can also offer the alternative of charges being automatically billed to the parent's credit card. You may already be familiar with similar automated payment services used by utilities, insurance companies or health clubs.

Why is this a better way to collect your fees?
More reliable Cash Flow - This approach will allow you to have a consistent and predictable cash flow, which will enhance your center's financial management.

Minimize need to be a collection agent - By eliminating the possibility of balances not being paid, you won't have to spend time on the unpleasant task of chasing parents for the fees they owe you.

Better security and control of funds - By eliminating checks, you no longer have to worry about checks being lost, funds being mishandled, or deposits not being made in a timely fashion. This is especially advantageous for multi-site operations.

Less Administrative Time - Depending on your accounting system, payments may be recorded automatically, saving further posting time. More Convenient for Parents - Automatic payments allow parents to save time writing checks and save money by eliminating late payment fees.


How does it work?
In its simplest form, preauthorized payments involve electronically transmitting information about each parent's banking or credit card account -- along with the amount to be collected -- to a transaction processor. Credit card transactions are processed though the credit card networks (Visa, MasterCard, etc.), while bank draft transactions are processed through a separate system operated by the Federal Reserve, called the Automated Clearing House (ACH). Since there are many advantages to offering both forms of payment, you should look for solutions that support processing both types of transactions. Also, you don't want to re-enter the account information each month, so you will need software that is capable of maintaining the parent's account information, generating the transactions (hopefully based on outstanding balances) as well as managing the subtleties involved (such as credit card expirations, returned items, etc.)





What Will It Cost?
Depending on your processing company and the volume of transactions, you should expect to pay between 35 and 75 per transaction (plus credit card discount rate), as well as a small monthly account maintenance fee. Although this may seem like an additional expense, these costs are actually much lower than the total cost of processing checks manually, which according to banking experts is $2-4 per item when you include all bank fees and time spent to handle, post and deposit checks. And let's not forget the costs of potential human error, or misappropriation of funds with multiple "hand-offs" and manual check processing.

The Role of Technology
The right software and processing company are essential to achieving the full potential and advantages of electronic fee collection. There is a wide assortment of possible solutions available for credit card and/or ACH processing, but the most important considerations are:
Ability to handle both credit card and ACH transactions
Integration with effective accounts receivable system,
Recurring fixed or variable collection amounts,
Flexible collection timing, automatic processing of returns, and
Optional handling of one-time transactions.

Duplicating Others' Success
Over the last several years, hundreds of child care providers have begun offering this payment methodology with great results in terms of efficiency and convenience. In fact, use of this technology has been growing dramatically as centers recognize the advantages and as younger tech- savvy families drive higher rates of participation. Here are some comments from a few child care programs that have been offering electronic fee collection:

"Electronic fee collection is so simple. Parents enjoy the convenience, and we love how it reduces bank trips and collection issues. Best of all is how it automatically integrates with the EZ-CARE2 software we use, which saves us 3-4 hours each week."
Bob Moore, Owner
Care-A-Lot Child Care

"Parent acceptance of preauthorized payments has exceeded our expectations, with 50% participation in only our second year. It is saving me so much time and effort; I can't wait to see this grow even further."
Andrea McCole,
Children of the Woodlands

"Historically we have had some families that have been challenges in
terms of timely payments. Since we started using EZ-EFT, we have seen a dramatic improvement in terms of cash flow and reduction in outstanding balances."
Bruce Kahan
All Saints All Day Care Center

The Six Secrets
Sounds great, right? But how can you ensure success when you introduce this new payment method? Here are the six secrets we've discovered in our over five years helping centers implement EFT for fee collection.

1. Educate parents (and employees)
Parents will typically have questions about how exactly this new payment approach will work. It is critical to provide information to your families that explains the technology and effectively addresses common questions and concerns. Educate your staff, including teachers. If they understand the benefits, they will be able to do a much better job convincing parents to participate. Since higher participation benefits everyone, you may even want to provide them a small incentive for getting a parent to enroll.

2. Offer a try-it promotion
The biggest impediment to participation is getting parents to take the step of completing the authorization form. Though some will respond immediately, because they value the convenience, the majority will have a tendency to not take action - even if they are inclined to pay this way. Remember you are fighting one of the most powerful human traits: inertia. The solution is simple. Give them a reason to take immediate action. Our studies show that initial rates of participation typically double if you offer a try-it incentive. Somewhat surprisingly, the incentive doesn't have to be costly. Small one-time incentives like a one-time $25 discount or the opportunity to be entered into a raffle for a larger prize, like one week's tuition or a gas grill, work very well. Once parents are signed up, it is very rare that they will discontinue electronic payment.

3. Offer both bank draft and credit card payment options Credit cards are popular with parents, but bank draft transactions are lower cost and eliminate issues related to credit card expiration. The best way to maximize participation while controlling costs is to offer both payment options and to adjust your fees and incentives to promote the method you prefer. "

4. Promote pre-authorized payment as the standard way to pay If pre-authorized payment is viewed as just an optional way of paying, there will always be parents who will be reluctant to authorize it. Consider changing your enrollment forms and approach to new families by saying something like:

Fees are collected electronically each billing period. Would you prefer payment made from:

Checking Account, Savings Account, Credit Card (if you offer this option)

Of course, you always have the option of allowing a family to pay by check, if you wish, but this way makes it the exception.

5. Work with a vendor that understands electronic payments and child care administration
Most banks and organizations that facilitate processing credit cards or ACH transactions have no understanding of the many ways child care fee collection is unique. In most cases, they can only provide one payment method or require separate agreements, fees and processes for credit card and ACH transactions. You certainly don't want to waste time and increase the chances of error by having to enter credit card numbers and amounts into a credit card terminal each month. Nor do you want to have to create your own materials to effectively promote pre-authorized payments. Vendors that specialize in developing and providing technology for child care centers can allow you to benefit from a proven solution used by other organizations. And their procedures, reports and support materials will be better suited to the specialized needs of your center.

6. Just Do It!
The benefits of offering pre-authorized fee collection are huge. Every day you wait is another day your program is giving up the opportunity to be more efficient, professional and financially stronger.

Conclusion
In summary, technology is available and affordable to facilitate the collection of child care fees automatically and electronically. Using this technology, hundreds of centers have dramatically improved the ease and efficiency of managing the tuition collection process. In addition, offering this service significantly enhances the professional image of your center, as well as your financial stability. These days, that is a paramount issue
with parents who are selective about who will care for their children, how efficiently they operate, and how long they'll be around. We hope the secrets we've shared in this white paper can help you make pre-authorized electronic fee collection a reality for your organization.

Glossary of Terms
Merchant Account - Account for processing credit card transactions.
A single merchant account can be used to process Visa and MasterCard transactions. Separate merchant accounts are required for American Express and Discover, however transactions for these cards can typically be transmitted through a single process.

Automated Clearing House (ACH) - Operated by the Federal Reserve, this is the system used to transfer electronic (ACH) transactions between bank accounts.


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