Top billing for bad creditors

While universities have learnt to generate income, they can be slow to collect the cash, says Peter Buckle

English universities earn more than £2 billion each year from commercial activities such as hiring out facilities for conference or wedding use, according to figures published by the Higher Education Funding Council for England.

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 run slick commercial operations that blast into oblivion the stereotypical images of universities populated by slacker students and fusty old professors.

Students, academics and managers are becoming increasingly financially savvy as they meet the changing demands made on them, which includes coping with a budget shortfall of £1.6 billion by 2010, according to the Higher Education Policy Institute.

As universities already recognise, one way to offset this figure is by diversifying revenue streams and increasing income from commercial activities. But the precious extra resources can be allocated to core academic activity only when the cash is safely in the bank, and too often there are delays in collecting the debts by private or commercial customers.

Analysis of Hefce figures reveals that poor debt collection costs English universities nearly Pounds 120 million each year. That's equivalent to the cost of employing 4,400 lecturers, providing tens of thousands of new computers or even constructing that new chemistry building the science faculty has been lobbying for.

To "reclaim" this £120 million, institutions need to ensure their financial management processes are effective and efficient. For example, care should be taken to ensure billing is clean. Inaccurate bills are rarely paid and disputes take up valuable staff time.

Billing promptly encourages people to pay promptly. When busy periods are approaching, such as 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 begin to dominate.

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

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 reserves part of their time to ensure that income management issues are not neglected, they can keep processes running smoothly and flag up potential issues that may arise - before they become big problems.

Technology can improve income management. Finance departments should automate cash collection where practicable, bill electronically and use specialist software to manage collections and query resolution. Providing commercial customers with online access to account statements can help ensure they pay their debts on time.

It is not always practical or appropriate to run credit checks on customers, but as universities step up their commercial dealings, they should draft credit policies to help them measure and carefully manage financial risks.

Take the example of a student room available for rent during the holidays.

When would you run credit checks on the people using it? It probably wouldn't be worthwhile to investigate a tourist staying a few nights - although taking credit card details offers some protection - but if a language school booked a substantial number of rooms for several months, it may be worth ensuring it was in a position to pay its bills in advance.

The increasingly diverse nature of university funding presents fresh challenges to the people who run the institutions. Promoting good income management is essential to maximising the funds generated through commercial activity and should be prioritised across the sector.

Peter Buckle is head of income management at PricewaterhouseCoopers.