Tuition Strategies: EasyPay and Electric Fund Transfers

Larry Dokes's EasyPay billing company pioneered the electronic funds transfer (EFT) in the early 1990s. Larry was an early mentor of mine and has helped me a great deal. Based in Belton, Texas, EasyPay specializes in smaller schools in smaller markets. EasyPay offered a non-contract solution that automatically withdrew students' tuition from their bank accounts. This took most of the monthly decision of who to pay out of the students' mind since the tuition was automatically paid.

EasyPay made a good argument that schools who do hard collections for unused lessons are creating big problems for the entire industry that might even lead to government regulations. I agree. While some soft collection is fine for agreements, moving to the point of hard collections – especially where the student's credit is negatively affected – is not usually a good idea for your reputation or that of our industry. Teaching better classes is a more productive way to invest your time and energy than hammering students you were not able to keep.

The original appeal of the EFT was that, if a student were going to drop out and not pay anyway, why put him on contract in the first place? Use an EFT and get paid automatically each month. That strategy has worked for many schools and still does, but I doubt it works as well as a cash out or an agreement.

Market Realities of EFTs

1. While most drop-outs do not continue to pay, some do if they are on an agreement. You would be walking away from the money you could collect from students on agreements by not using agreements in the first place.
2. EFT is a great way to collect funds, but it's not always easy to get the student to agree to it. A person that will agree to EFT for insurance or car payments may not see martial arts lessons at the same level of necessity or security. So, as with signing a contract, a percentage of the population is uncomfortable with anyone "getting into their account." Though no one is really in their account, the perception for many is that this is risky, just like a contract.
3. In the martial arts it's tough to get hard numbers, but my experience indicates that students find it easier to quit on an EFT than on an agreement. All they have to do is tell their bank to stop making the payments. In fact, with the progress of Internet banking, many people will not sign the EFT but will insist instead on setting the payments up themselves, which gives them total cancellation control.
4. If both EFTs and agreements present problems, what's the solution? A sound cash out strategy is one solution. For ongoing payments, the combination of a 12-month agreement (for new students) with an EFT collection process, using a third-party billing company, is the best solution I have seen. Running a close second is the automatic credit card charge each month. For credit card drafts, try to get the student to use American Express, Diner's Card, or any other card that doesn't allow the holder to carry a balance.

These cards decline less, since they have to be paid off each month. AmEx may charge a little more in merchant fees but for a service business, that's a small trade-off for a more efficient collections system.

Of course, you may want to offer back-up plans such as four- or six-month cash out programs to help people who do not like EFTs or credit cards.

Despite the Internet and progress with technology, collecting your own tuition is not the best use of your time and energy. Today it may seem that all you have to do is set your students up on PayPal.com or any of the many billing solutions for less than three percent. But you still have to chase declines and bounced checks.

Companies like PayPal can automate the billing, but they don't make follow-up calls or work to collect multiple months of back tuition. PayPal will attempt to collect a declined card five more days, and then it stops trying and waits until the next cycle to collect tuition. However, it won't collect the missed tuition from last month. It will collect only the current months. Students can't call PayPal to resolve billing and account issues; they have to go through the school, leaving you to handle these time-consuming matters.

This cycle can go on for months or forever unless you catch it. Then someone has to contact that student. I don't think that someone should be from your office. I think it works best when a third-party billing company makes those kinds of follow-up calls. That's why I suggest you use an industry-specific martial arts billing company instead of doing it yourself.

Most billing companies charge less than eight percent for EFT and credit card debits. When considering using a billing company, the question is not how much it costs but how much more tuition can I receive for that cost?