Cash Management Boosts Your Bottom Line

Vol. 15 No. 3

businessmanager eletter Vol15 No3 growth

Are you gaining the greatest possible benefit from your school’s cash on deposit? Schools, like most businesses, pay their bills—payroll and invoices for goods bought and services delivered —periodically, usually several times a month.

What happens to that money between the time it arrives and the time you make payments? Your school can maximize the income and benefits provided by these large infusions of cash, increasing the funds available for investment.

Tuition Income Strategies

ISM consistently recommends that schools, to the greatest degree possible, get out of the “banking business” and move toward full payment of tuition in advance, even by credit card. An alternative would be to have parents sign up with a tuition loan firm.

If you choose to continue providing school-sponsored payment options as a service to families, ensure that you don’t lose income in the process.

  • Encourage parents to remit the entire balance by charging fees for partial payments. This fee should be substantial enough to encourage full tuition payments by the greatest number of families.
  • Set up a systematic, aggressive, well-publicized procedure for following up on past-due payments. Charge a late fee that covers the administrative costs involved.

    Include late fees, interest on unpaid balances, and other Business Office policies in your enrollment contract and parent handbook, forewarning parents and clearly setting forth “truth-in-lending” requirements, as necessary.

  • Consider advancing your billing and tuition due dates. If tuition is now due September 1, change it to July 15 or August 1. Receiving these payments earlier improves the school’s cash flow, which is an important step in good cash management.

    Write a letter now to parents explaining that the due date has changed to provide more income to support the school, which helps minimize tuition increases.

    Provide advance notice to allow parents time to make the transition. If you implement this new policy too quickly, you risk creating negative feelings. While there may be some gripes the first year, after that, the change will fade from memory.

  • Think through all the ramifications before you decide to offer monthly payment plans. They are labor-intensive and sometimes aggravating. While this option can be an attractive feature for parents, consider using a monthly payment plan service. The service provider sends invoices to the parents, collects monthly payments, and remits the collected funds to the school, saving you time and effort.

    However, your school will lose some investment power because the service provider will hold the funds for 15 or more days. The provider will also turn over to the school all accounts in arrears for more than 60 days.

    Insist that parents who pay on a monthly plan remit funds by direct debit. This forces families to schedule their payment in advance and minimizes slow or late payments.

Paying the Bills

  • Limit the number of times the school pays bills—once or twice a month rather than once or twice a week. Take advantage of any vendor discounts offered, but only if the discount outweighs the interest earned on invested funds.
  • Never pay bills before they are due. If the vendor gives you 30 days to pay without penalty, take the 30 days.
  • Negotiate with vendors you use often to set up one regular payment date each month, no matter how many bills are sent. Also, get as many firms as possible to agree to the same date. This way, you eliminate the need to keep track of many separate due dates and only have to issue one check per vendor.

    This agreement should include a provision that, should a payment be slightly past due because of this payment cycle, no penalty will be charged. For good customers (and schools should fall into this category), vendors are willing to accommodate these types of requests.

Banking and Bank Services

  • Make daily deposits to the bank. This sounds simple, but schools often overlook this essential strategy for cash management. The trip may be inconvenient and steal time from other tasks, but for many reasons—such as good internal control and investment availability—time should be “found” for this important task. With electronic banking, schools have access to their funds sooner than ever before. If checks are returned for insufficient funds, aggressively follow up and charge the parents any fee the school pays for presenting NSF checks.
  • Do you have more than one checking account? Consolidate any that you don’t specifically need to maintain separately, as there usually is a minimum charge for each account.
  • Ask your bank for a monthly account analysis. This document will help you minimize uninvested funds. Most banks, except those that are small, are willing to provide an analysis. There are several different functions involved. Determine which services the bank provides free or involves a fee. Find out if the charge is negotiable.

    The account analysis will show the average amount of money on deposit during the month, the number and type of transactions, and the cost of services rendered to you, as the customer. Theoretically, if you invest excess funds, the report’s bottom line should be as close to zero as possible. Over the course of the year, your cumulative target should be zero as well.

    Besides checking carefully to ensure you are only paying for services you need and that were rendered, monitor the cost through your account analysis. If you “pay” for the analysis through a compensating balance arrangement, it is easy to lose sight of the cost because you never write the bank a check. It’s preferable to pay by check each month and keep as little money as possible in your account, investing the rest for your benefit—not the bank’s.

Cash Flow Report

Develop a monthly cash flow report. This document helps you keep an eye on your excess funds and investment opportunities.

Go back for two or three years to determine how much cash was received and disbursed and when. Note any circumstances that are no longer applicable and any planned changes. Make a projection for the current year.

After considering these suggestions, the next step is to decide how the school’s invests excess funds. Alternatives include sweep accounts, certificates of deposit or commercial papers, the Treasury Direct program, money market funds, and investment managers. If you do not have expertise in this area in your Business Office or on your Board, consult with a professional financial adviser to make the best use of your available funds.

Additional ISM resources:
The Source for Trustees Vol. 13 No. 7 Reports to and From the Finance Committee

Additional ISM resources for Gold Consortium members:
I&P Vol. 38 No. 9Reduce Budget Compromises: Strategies for Maximizing Income
I&P Vol. 40 No. 8 Your Strategic Financial Plan: Hard Income P&L

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