Friday, 6 July 2012

I am a bank

I am a bank.

Honest, I really am. This is not a joke.

You see, I lend people money. Or, more accurately, I allow them to run lines of credit, which I create for them out of thin air.

Let me explain. My day job is teaching singing, much of it to teenagers in secondary schools. These teenagers' lessons are paid for by their parents. I invoice them for 10 lessons at a time and they are supposed to pay for the whole series of lessons before the series starts.

In practice, hardly anyone does. About half will have paid by the 5th lesson and the remainder have to be chased. The vast majority do pay by the end of the series of lessons, but there are a small minority who have to be cajoled, threatened or even prosecuted. Some negotiate with me for payment in instalments and then forget to make those payments.

No doubt because of their own financial difficulties, the proportion of people who pay late is rising, as is the proportion of people who don't pay at all. In the last year I have prosecuted two people at the County Court, one of whom didn't reply and has had default judgement served against them - but I still haven't been paid. The other has offered to pay off the fees and associated charges at £20 per month, which is all she reckons she can afford.....but if that is true then she couldn't afford the lessons in the first place, because the fees for 10 lessons between January and March were £135. In effect she is expecting me to extend her an interest-free loan.

But she is not the only one. In fact every single one of the parents who pays late is expecting me to provide them with interest-free credit.

Which is why I say I am a bank. But unlike a normal bank, I am expected to provide this credit interest-free - parents get very angry if I start imposing interest on late payments, although the law does allow me to do this and even recommends a rate. If I upset parents, they may take their business elsewhere - and student numbers are falling at the moment because poorer parents are finding it difficult to maintain their childrens' musical activities at the moment. So I could end up even worse off if I insist that parents have to pay up front.

I am by no means alone in this. Most small businesses are forced to extend lines of credit interest-free to customers, particularly large and rich ones who have the leverage to squeeze them out of business if they complain. The majority of small businesses, therefore, are unofficially acting as banks.

And they do it at considerable cost. Like most micro businesses, I rely on the fees from my singing lessons to meet my personal living expenses. Because parents routinely breach my terms and conditions that clearly state that payment must be made in full within 14 days of the invoice, which is sent before the start of term, I have no idea when I will be paid - but my own bills still have to be paid. Unlike my parents, I have no access to interest-free credit: I can only borrow from the bank, and if I go over my overdraft limit that funding is at a penalty rate. And as I said above, it is difficult for me to pass these costs on to my customers.

There has been considerable discussion recently about trust in banking. People are understandably angry that banks have betrayed their trust and behaved disgracefully. I have no doubt that the parents who fail to pay my bills on time (or at all) are among those who are angry at the fraudulent behaviour of banks. What a pity they can't see that their own behaviour is just as bad.

Businesses like mine depend absolutely on trust - trust from the parents, that their child will be properly taught: and trust from me, that parents will pay in accordance with agreed terms and conditions. If one side fails to abide by their obligations, that trust is broken. I already feel as if I should, for my family's sake, seek employment with a steady income, but I resist that pressure because I love the work I do and believe that I deliver real value to my students. But if the present trend - increasing volumes of late and failed payments - continues it will not be possible for me to continue.

This article is cross-posted at