Why universities should start debt collecting

English universities now earn more than £2bn each year from commercial activities, such as hiring out facilities for conferences or weddings, according to figures published by the Higher Education Funding Council for England (HEFCE).

Institutions have adjusted their development plans to better accommodate commercial needs, and have ramped up their marketing operations to maximise awareness of the facilities on offer.

Many are running slick commercial operations, which blast stereotypical images of universities populated by slacker students and fusty old professors into oblivion. Students, academics and managers are all becoming financially savvy as they meet changing demands.

These demands will include coping with a budget shortfall of £1.6bn by 2010, according to the Higher Education Policy Institute.

As universities already recognise, one important way of offsetting this figure is by diversifying revenue streams and increasing income from commercial activity.

However, precious extra resources can only be directed towards core academic activity when it is safely in the bank, and too often there are delays in collecting debts owed by private or commercial customers. Analysis of HEFCE figures reveals that poor debt collection costs English universities nearly £120m each year, which would help pay for all those lecturers, computers or buildings.

To ‘reclaim’ this £120m, higher education institutions need to address many internal systems and processes from the top down. The involvement of vice-chancellors is crucial – like any project, a noticeable change in the way a university manages its commercial functions needs strong leadership.

Senior management must start to define which responsibilities lie with which department, and should assign accountability and pass authority accordingly. For while the vice-chancellor is important when it comes to defining policy, day-to-day issues like debt write-off should be devolved, with clear reporting lines.

As responsibilities are shared out, effective paths of communication need to be established between the departments providing the services, the finance department which administers the chasing of the invoice and any other relevant parts of the university. This ensures cash is allocated back to the correct budgets and helps create financial management processes that are effective and efficient.

Audit committee chairs should be included in these communication paths.

Since their roles include assessing and managing risks, they need to be aware of any cash flow problems. They can only create robust risk assessments if they are briefed on the status of income management.

Best practice in debt collection means taking care to ensure billing is clean. Inaccurate bills are rarely paid and disputes take up valuable staff time. If any more than 4% of total accounts receivable is in dispute, you have a problem.

Of course, accurate bills rely on dependable information going into IT systems – and it should go into IT systems. Technology can help improve income management, so finance departments should automate cash allocation where practicable, bill electronically and use specialist software to manage collections and query resolution. Providing commercial customers with online access to account statements helps ensure they pay their debts on time. But accuracy is key or else the number of invoice queries will escalate.

Billing quickly will encourage people to pay more promptly. Few debtors will pay if they have not been asked for the money so it is crucial to invoice customers promptly, ideally within a few days of their custom.

When particularly busy periods are approaching, for example, the end of the financial year or the autumn enrolment period, finance departments should plan ahead to ensure all billing is completed before other pressures divide priorities.

Efficient, accurate billing not only helps ensure effective income management, but also enhances universities’ reputations as professional suppliers, able to compete with hotels and other venues.

With stiff competition in the market, universities must maintain a delicate balance between retaining customers by adopting a soft approach towards commercial debtors and operating in a business-like way with tight financial controls.

Even when employees have to focus on other activities during busy periods, some resources should be ring-fenced for collecting debt. If at least one person keeps part of their time reserved to ensure income management issues are not neglected, they can keep processes running smoothly and flag up potential issues that arise, before they become a bigger problem.

If staff are so hard pushed they really cannot devote sufficient attention to debt collection, it is worth considering appointing extra team members on short-term contracts. Such contractors tend to be better trained and more loyal than temporary workers.

The increasingly diverse nature of university funding presents fresh challenges to those managing higher education institutes.

Promoting good income management is essential to maximising the funds generated through commercial activity and should be prioritised across the sector.

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