Generally speaking, agents set their own conditions relating to their financial relationships with clients, while schools take the lead in establishing the terms upon which they deal with agents. As David Bonett, Group Financial Controller at EC Language Centres, which has schools in Malta, the UK and South Africa, points out, “The two are not necessarily related.” Language schools normally insist on payment being received before the start of the programme. For EC, standard business terms and conditions require payment 14 days before the arrival of the student. Meanwhile, Academia Latinoamericana de Espanol in Quito, Ecuador, sets different rules for individuals and student groups. While individuals are able to pay on a monthly basis, student groups which represent a greater risk on account of numbers are required to make payment one month prior to arrival.
Agents in turn normally demand a deposit from clients upon receipt of the booking, and then the balance in time to make payment to the school prior to the start of the course. At ILCO agency in Spain, for example, Carmen Salvans reports that a non-refundable deposit of e300 (US$407) is required at the time of booking, while HBS in Switzerland takes a deposit of CHF250 (US$206) on early bookings, with other clients paying the whole amount at one time. Not only does the deposit serve as a token of the student’s serious intent, but, in the case of Colombian agency Educonexion, it is also used to cover the agency commission. Educonexion’s clients then pay the balance owing directly to the school, thus avoiding tax complications, according to Academic Director, Adriana Sánchez Polanco. Regardless of any deposit taken, because of the high cost of transferring money (of which, more below), most agencies normally make just one payment to the language school prior to the student’s start date, having already deducted commission from the gross amount.
What is described above is standard procedure, as adopted by each business. Where followed, this works well. However, many find that, in practice, it is sometimes necessary to deviate from the rules. Last-minute bookings are a common case in point. In such cases, most schools are flexible, according to Sánchez. Her agency always asks students for an initial deposit and “the school assures itself the student will pay the remaining money to them without problem”. Swiss agent, Sibylle Sigg of HBS confirms that late bookings are sometimes accepted without advance payment. However, this is mostly based on the fact that the agency is well known to the school. Payment is normally received, at the latest, during the first week of the course, says Sigg.
From the schools’ perspective, late bookings are normally accepted only reluctantly without advance payment. As Guido Schillig, Managing Director of Anglo-Continental in Bournemouth, UK, comments, “While last-minute bookings can be an unexpected bonus, [they have] a much greater chance of being a potential bad debt, especially if it is a short-term booking, or from an unfamiliar agent.” Consequently, many schools only agree to accept such bookings when they come via a known, reputable agent. “If we receive an application from an agency we don’t know, payment has to be done in advance,” confirms Diego del Corral of Academia Latinoamericana de Espanol. English Language Academy in Sliema, Malta, goes further. Payment by credit card is asked for with last-minute bookings. “We always insist on receiving payment before the start of the course,” underlines School Manager, Louiseanne Mercieca, “and, as a result, we have no risk of possible non-payment.”
Elsewhere, to protect themselves as far as possible from financial loss when accepting last-minute bookings, schools employ a variety of strategies. At Language Links Education and Training College in Perth, Australia, all student graduation documents are withheld until payment has been made in full, according to Finance and Marketing Manager, Leanne Everett. Meanwhile, EC adopts a tough stance. According to Bonnet, not only does the company rely on experience before granting credit, but also, “we make it clear that if payment is not received within the agreed time-frame, then we reserve the right to terminate the students’ courses mid-way. This,” he explains, “is an action that agencies take quite seriously, as it would damage their reputation back home if a student who paid them in full were to be sent back home because the agency hadn’t footed [its] bill.” Quite simply, any school that accepts last-minute bookings without putting some controls in place would be laying itself wide open to financial problems.
More tricky, perhaps, is the situation where an agent partner of long standing exerts pressure on a school to allow credit terms on an ongoing basis. Although many language schools are understandably coy about their stance on this, many do allow credit to selected well-established partners. Edgar Duarte of Ixbalanque School in Honduras admits that, “In cases where we have a long-term relationship, or the agent sends a large amount of business, we will offer more flexible payment terms.” Bonett believes the fact that the industry operates without any standard protocols on payment terms makes it easier for agents to apply pressure to grant credit, on the basis that “other schools do it”. He adds, “Whether or not we can extend credit would depend on the length and quality of our relationship, the agent’s track record and the volume of bookings and revenue that we get. This would, however, require a formal credit agreement, with a credit limit to cap our exposure.”
Such precautions are essential. As Bonett points out, “Credit is a very risky business in our industry. There is little one can do if an agency defaults on credit, particularly if the reason for this is that the agency is facing bankruptcy.” He adds, “Resorting to cross-border legal action tends to be quite expensive, and many agencies are relatively small businesses that lack a solid asset-base to turn to in case of credit default.” These kinds of risk were effectively highlighted not long ago, when one of North America’s largest agencies was on the brink of collapse, owing substantial debts to partner schools. Since then, Corral comments that his school has stopped accepting late payment. “We have become more strict with all agencies around the world.” Even if many still feel obliged sometimes to flout their own rules occasionally, it appears that schools have in general begun to adopt a more cautious attitude to credit. On the necessity of this, Schillig is categorical. “Schools must not deviate from their stated terms of business unless there is a sound business reason to do so, and with an agent who has a long, established history with the school. If there is a problem with payment,” he says, “then the agents should not hide themselves, but should discuss ways to resolve the situation.”
Late payments by clients to agents are much less of a problem, since agents have a number of effective sanctions at their disposal. According to Sanchez, students will not be able to obtain a visa and then not pay, “first, because we report them to immigration, [and] second, because they won’t be received at the school or accommodation if there is no payment”. Similarly, at HBS, any student who is late in paying would not be given their homestay address or school confirmation, reports Sigg.
The actual transfer of money itself is most commonly carried out via bank transfer, although credit card payments are also popular. Although bank transfers work well in most cases, there are many complaints about the high charges demanded by banks. An alternative option, currently used by over 1,200 organisations, is The Clearing House Service, which was expressly set up for the needs of student travel companies. According to Director, Mark Butler, its main advantages are convenience and ease of use, plus, he says, “our fees are much lower than a bank would charge for a bank transfer, and there is no charge for receiving money”. The company has bank accounts in 38 countries and deals regularly in 26 currencies. Within these limits, clients can make payments in local currency through their local banking system, and everything is treated as a local payment, regardless of its destination and currency.
Currency fluctuations are also a concern for both agents and schools. For agents, this means sometimes having to tell the client that the price has gone up between the booking and final payment. At HBS, clients’ contracts contain a clause allowing the agency to recoup the difference in the event of a currency falling by more than five per cent. Below this, the agency has to absorb the cost and, of course, it also reaps the benefit when currencies rise.
Schools’ exposure depends upon whether or not they accept payment in currencies other than their own, and different schools take a different stance on this. Sea English Academy International in Maroochydore, Australia, is not affected, as all payments are made in Australian dollars, reports the school’s Kim Edwards. Mercieca in Malta, on the other hand, says that ELA’s clients are free to pay in the currency they prefer, but, she stresses, “we expect the exact Maltese liri equivalent”. Other schools have their own strategies for currency management. At Anglo-Continental, for example, which invoices in both US dollars and sterling, the risk attached to currency fluctuations is managed through the use of forward contracts and currency swaps. “These sound scary terms,” says Schillig, “but are very easy once they have been properly explained.”
Using a sound strategy to handle currency fluctuations is as important for agents as it is for schools, as Schillig highlights, even if many do not do so. “Experience has shown that some smaller agents have one year enjoyed making a currency profit, and then, the following year, have seen their commission shrink when the currency market has moved against them,” he observes. “In this latter situation, the agent will hope that their fortunes will turn, and they use every excuse to delay payment, but,” he warns, “more often than not, the situation only gets worse.”
Moving to industry standards
Although money matters in the language travel business can be fraught with difficulty, the fact is that agents and schools alike have it in their power to keep them under control. Business relations based on strong, trusting mutual relationships are worth their weight in gold as it is in both parties’ interests to minimise any potential areas of conflict and misunderstanding regarding payment procedures. Perhaps more support could be provided in terms of creating an industry body to monitor payments (see box, page 28-29). But, most of all, it is a question of adopting a well-considered policy and then most importantly sticking to it. Like many other things in life, this is easier said than done.
Refunds to students who cancel their course are an area where different schools operate different policies. Agents are guided by the rules laid down by the school in question, although the deposit they have taken upon booking is generally non-refundable.
Some schools will be more flexible than others, so this is something that agents should take into account when advising clients. Generally speaking, refunds are not given at least in theory if cancellation occurs after the start date of the course, and many schools operate a notice period. The International English School in South Africa operates a straightforward policy whereby, reports Director, Tania Copeland, “If cancellation occurs after the course has begun, we do not give a refund. If [the student cancels] prior to coming, we receive nothing.”
However, at Australian school, Language Links Education and Training College, four weeks’ notice is generally required prior to cancellation. “Cancellations after course commencement attract an administration fee and possibly a notice period penalty,” explains Finance and Marketing Manager, Leanne Everett. Louiseanne Mercieca, School Manager at English Language Academy in Malta, says that where cancellation occurs after the start of the course, her school charges a three-day cancellation fee on accommodation. While it makes no refund for tuition fees, a credit note is given, less a five per cent cancellation fee. Meanwhile, at EC Language Centres, students are required to pay one week’s accommodation and tuition, if cancellation is less than 14 days prior to their arrival.
Academia Latinoamericana de Espanol in Ecuador prides itself on its flexibility, with partial refunds available at any stage in the programme. “Students can stop their course programme any time and for any reason, and everything goes by the week. If they wish, we can refund the weeks not used in cash, or they can get a certificate to use their weeks later in the year in [our schools] in Ecuador, Peru or Bolivia,” underlines Diego del Corral.
Agency bookings and direct bookings are not always treated equally. “In general, we offer a more generous refund to agents than to direct students, because we want to help support their marketing of our school,” says Edgar Duarte of Ixbalanque School in Guatemala. “We usually refund any unused classes and [their] homestay [fees], but we may keep one week, depending on how much advance warning we have received.”
In cases where a student is unsuccessful in obtaining a visa or in cases such as serious illness, most schools will make an exception to their “no refund” policy, although some will charge a small administration fee in such cases. “We tend to waive the cancellation fee if there is a valid reason, such as failure to obtain a visa or in extreme cases, such as a family death or serious illness,” confirms David Bonett of EC Language Centres.
Cancellation, though uncommon, is seen as part and parcel of the business and is widely viewed sympathetically wherever possible, and agencies who account for all eventualities will avoid problems later on.
Although most language schools and agents by and large enjoy excellent working relationships, many in the industry would welcome the establishment of some kind of “watchdog” body that could work on the industry’s behalf to monitor and chase up payments. As Leanne Everett, Finance and Marketing Manager at Language Links Education and Training College in Australia explains, “I feel, with some agents, the school spends a lot of admin time calculating and chasing up outstanding fees. If there was a separate body or government office assisting in this, once the fees become extremely overdue, this would put less pressure on the institution and the agent/school relationship.” At present, says David Bonett, Group Financial Controller at EC Language Centres, “The only industry resource that I am aware of is the possibility to report slow-paying agents to English UK or other industry associations, who would place them on a black-list and warn other schools,” he relates.
So, what is the answer? “Wouldn’t it be great to have a financial system that could act as the intermediary guarantor for schools to ensure (or insure) payments from agents to schools in exchange for a small cut of the action,” ventures Chris Musial, Marketing Director at International Language Institute in Canada. “A percentage of the remittance, perhaps? This would allow recruiters and registrars to focus on their work and open their registration procedures up without having to worry about late payments or having to play ‘banker’ to delinquent agents,” he adds.
Musial has set out the germ of an idea via the School Owners Forum (SOF) a virtual online community originated by Marvyn Martin of Select. Inspired by Pay Pal, the online payment system for the retail industry, the basis of such a system would be to guarantee timely payments for language schools, together with the provision of a financial screening system for agents. “Perhaps Pay Pal could use the infrastructure and experience they have gained from their first project and create a derivative service tailored to the needs of our industry,” suggests Musial. “Such a system would be particularly helpful when dealing with large summer/winter groups, where one agency sends 50 or more students.” Schools could choose not to use such a system, he comments, but they would be fairly warned about dealing with agents who didn’t meet the screening process of the financial intermediary.
If Diego del Corral of Ecuador language school, Academia Latinoamericana de Espanol, is typical, then this is what many have been waiting for. “I would love to know,” he says, “how language schools can establish some sort of procedure to collect payments and protect ourselves that could be a real dream,” begging the question; are there any volunteers out there ready to accept such a challenge?