How late payments impact franchisees in the children’s sector

Having to chase down late payments is never fun, but Nikki Th'ng of ClassForKids argues that it's even worse for franchises in the children's class sector

How late payments impact franchisees in the children’s sector

Late payments are estimated to cost the UK economy around £2.5bn a year. The Federation of Small Businesses also believes one in three payments to small businesses are late and entrepreneurs spend an average of 1.2 days every month chasing payments.”In the children’s franchise sector, late payment culture is a common concern for franchisees managing cashflow and hundreds of busy parent customers.
But what causes late payments in the children’s sector? There’s no doubt that customers – families and parents -lead complicated lives. They have many competing priorities and a long list of things on their ‘to-do’ lists. Reminding them to make a payment for a club or to confirm a space on a class for their child is just another thing to remember and as late payment mentality suggests they don’t always do that.

The thought of chasing payments is worse than no money

Parent customers are often managing a tight budget and with multiple children in tow, so kids activities can be a significant financial outlay. We know anecdotally that many parents choose to put their kids into activity classes rather than take out a gym membership for themselves and that their own cashflow is not always as fluid as they would like it to be. That doesn’t help matters when it comes to paying bills on time.

Interestingly, the mere thought of chasing payments is far worse than the thought of no payment for many small businesses. The time it takes to chase the money and the potential damage to relationships can make it feel like more hassle than it’s worth. Many franchisees today have switched to subscription-based payments as a result, which is in effect a form of direct debit, to eradicate this burden.

In what is a competitive market, clubs and franchises are often nervous about a whole raft of issues, whether it’s their pricing, their communication with parents, or their booking processes. Franchisees also fear losing customers to lower cost competitors with simpler processes, although that is no different to many other businesses sectors.

Money gets in the way of relationships

Relationships are key in the kids activity market. It’s equally important to create strong bonds with the parent and the child. Both are key decision makers. Franchisees and club owners are great at talking to parents about their club, the activities they run and the children that attend, but they’re not always great at talking about money. It can get in the way and is often seen as the negative part of the parent experience.

Despite this, organisers are often worried that using technology to simplify booking and payment process and automating more of these interactions, means that the relationships with parents will suffer. The reality is, by removing that part of the conversation franchisees can speed up payments and spend more time discussing the child and the parents’ ambitions and make changes to classes and experiences accordingly. This is what really leads to better relationships and customer retention.

In truth, parents like things to be simple. They are comfortable using technology and they readily use online platforms to pay for all manner of things from shopping to bills and school trips etc. on a daily basis. The fact that kids activities have traditionally been a ‘cash economy’ is a fact that will soon become historic. As with many other industries that have moved online, the children’s franchise sector simply has a degree of market normalisation to go through.

Reducing late payments

How can you reduce late payments? The simplest thing is to insist on booking up front to confirm a place. Though this sounds obvious, we are finding that the majority of clubs are now looking for systems that support this behaviour. Simple sales tips like adding a sense of urgency can have really big effect on late payments. It’s always worth being very clear about a payment deadline at the time of booking.

Being able to see at a glance who has debts outstanding can also help speed up late payments and automating your invoices to these customers can make a huge difference to admin workload and organisation. Sending outstanding invoices through multiple messaging channels is also worth trying. We found that introducing invoices by text-message with a link to pay online had a big effect on payments.

Uncertainty is the biggest impact

The biggest impact of late payments though, is always going to be the uncertainty. Predicting cash flow is crucial for any business, big or small, to help make decisions on marketing, pricing, and growth. In a franchisor or franchisee relationship it also has more complex implications surrounding trust and transparency. Both franchisees and franchisors are increasingly looking for data to be transparent and for reports to show more than just the basic financials. They are now looking for insight beyond the finances. They are asking about growth and conversion rates, repeat custom and drop-off, and are trying to understand how business behaviours tie-in to these results.

The amount of admin time that clubs and franchises spend chasing earned revenue places real and costly constraints on the business. This is time that would be better spent investing in training coaches, running marketing campaigns, engaging local schools and community groups, or any number of other ventures that contribute to business growth. “Wasting valuable time on a basic operational function like getting paid is unfortunately a growing casualty for businesses today but it is one that can be saved.

Nikki Th’ng
Nikki Th’ng