Prepayment discounts

When I started this post a couple years ago, it was going to be talking about how awesome pre-payment discounts were.

I was going to talk about how you get 5-10% off just by paying everything in advance, but the real benefit was that you didn’t have to remember to write a check every month.  An additional benefit (for some people) was that you tended to feel a little poorer when you paid out one lump sum and that helps moderate spending.

Since then, I’ve discovered the main danger of pre-payment.

DC2’s daycare, which DC1 went to for many years, suddenly and without warning disintegrated.  A former worker emptied out the bank account prior to the electric bill or payroll being paid out.  The management handled it terribly, waiting until the lack of funds became dire and unfixable.  All but 3 daycare workers quit.  Mass exodus from the students.

We prepaid $8000 for the year.  We’re out around $4500.  The director swears she’ll get us the money back once the bank refills the account (since they weren’t supposed to let that person take the money out), but it looks exceedingly less likely that that’s going to happen.  It looks more likely that the school is going to declare bankruptcy, and people with unfilled orders come last in the repaying of debts in bankruptcy cases.

Was that worth saving 5%?  No.  We’re wishing we’d just paid monthly.  But in May when we signed up, everything still looked fine.  The school has been around for a couple of decades.  We had no reason to believe that something like this could happen, and could happen so suddenly and without warning.  We thought that if we left the school it would be because we didn’t like a teacher or something (unlikely, because they have great training and we’ve always been able to work with the director in the past), and it would at least be our choice.

We’re still prepaying DC1’s private school.  That’s a non-profit and they can fund-raise through donations.  I guess since they survived the last drama, we didn’t learn any lessons there.  Also we sort of think of that prepayment as a donation itself.

So…. bottom line, think really hard about what you would lose if the company went out of business before you take advantage of a pre-payment discount.

Have you ever been burned by pre-paying?

26 Responses to “Prepayment discounts”

  1. Mrs. Pop @ Planting Our Pennies Says:

    Ugh. And I was lamenting on our blog today about losing out on $80 that I lost due to pre-paying. $4500? That hurts.

  2. Leah Says:

    ouch. That really burns. I can’t believe the management would let that spiral so hard.

    In retrospect, I was lucky with pre-payment. I pre-paid the majority of our wedding expenses (pretty much everything but the venue) because it was simpler to not have to bring checks day-of. I would have been fairly SOL had any of those fallen through.

    • Revanche Says:

      Huh, now you have my second guessing the payment plan for the wedding expenses. I tend to pay ahead just to get things out of the way, but I put it on a CC that’s great at recouping charges if reported in a reasonable period of time … hmm…

  3. Holly@ClubThrifty Says:

    Yikes! I am so sorry that you got ripped off to such an extent. I pay for my daycare one month at a time just because I don’t want to forget to pay on Fridays. Is there any way that you could sue in small claims court or anything?

    • nicoleandmaggie Says:

      Only if it doesn’t go out of business. If it goes out of business then we do a bankruptcy claim, and we’re last on the list to be paid.

      The lights were out and nobody was there this morning so…

      • hush Says:

        Oh criminy, how awful for you! What’s your backup childcare plan now?

      • nicoleandmaggie Says:

        DC1’s private school has 4 slots in their age-appropriate preschool room, so ze’ll start there tomorrow. It isn’t as great quality (the place that just shut down was truly wonderful developmentally), but it’s also not bad quality either. And it’s very convenient– just one stop.

        I will miss my 14 month old cleaning up after hirself (Montessori training in action). But at 18 mo, ze can go to another Montessori in town where it turns out that one of DC1’s favorite teachers from back when ze was at the old daycare now works. I’ll be happy to see Miz R too– I really liked her!

        And we can afford the 4.5K, but man, it hurts. I had to finally bite the bullet and stop extra 403(b) payments, something I’d been hoping to avoid. So, “first world problems”. Contrast that with our depressing update on the lower income relatives this Wednesday. They’re grateful for an anonymous $200 donation to help with gas and food.

  4. First Gen American Says:

    My worst experience is when I pre-payed a vacation rental and it wasn’t until after the full payment that the owner send me a multipage one sided contract (that was very different from the one pager he had previously sent me). Signature was mandatory or keys would not be issued. He had my money, what do you do now? Anyway, I won’t do that again despite the fact that I had previous rental experiences that were very positive.

    I also paid a contractor for plumbing supplies for a bathroom remodel and then he gambled the cash away at Foxwoods. He eventually did do the work because he was recommended by a slum lord friend who kept him employed, so she helped remedy the situation. When I called her, she was like..what, you gave him cash..never give him the stuff yourself and don’t pay him anything til the job is complete. Oops. How was I supposed to know he had a gambling problem?

    All in all, I didn’t have too many issues.

  5. Debbie M Says:

    Oh, wow, that’s horrible! You’ve lost the money and you’ve lost the school, too. A school with great training and a reasonable director. Ugh!

    I’ve never even thought about this possibility when I’ve prepaid. Like you, I love prepaying. Now I’m trying to think what all I prepay for a discount:
    * auto insurance
    * gym membership

    And there were no signs of problems at all! So now I’m rationalizing that my insurance company and that my gym are chains, so I’m probably still safe. Even though I do like to learn the easy way. Cognitive dissonance!

    And also, I’m wondering how much you saved over the years (~$888/year?) and so if you really stand to lose less than the $4500 you mentioned, but if you paid in May, that implies you’ve only gotten a few months of service and so you may have already taken that into account.

    Good luck getting this money back and finding a new place.

  6. bogart Says:

    Oh yuck, I’m sorry. The preschool DS no longer went to (just because he had started K, no problems) had somewhat similar problems (embezzlement, maybe, or perhaps a variant thereof e.g. one person grabbing operating-budget money and hanging onto it until some interpersonal dispute was resolved? I don’t know details) and I was glad not to get entangled, though my understanding is that it all eventually got satisfactorily resolved at least from the perspective of parents using the school (i.e. it still exists, people still like it).

    No misadventures here are springing to mind. I try whenever an expense is more than trivial (say, over $50) to prepay using a credit card, if possible, because I then get some protection from the card’s protections — but of course those are limited in duration, and only work if a vendor accepts credit card payments on a same-as-cash basis (I am not typically willing to pay a 3-5% surcharge just to use a card…).

  7. Michelle Says:

    Wow that’s a lot. We have been burned, but not too badly as we have already gotten our money back.

  8. Scooze Says:

    Yikes! That is terrible. But please also be careful with the non-profit school as well. I think you’re placing your confidence in that school for the wrong reason – in other words, continue to pre-pay (if you’re confident) because the likelihood that this situation will recur is highly unlikely, not because it is a non-profit. As a fundraiser for an education institution, I can tell you that donations come in good times, not bad. As soon as it looks like there is mismanagement or that things are shaky for any reason, the donations will dry up. Who wants to give to a losing institution? People give so that they can support non-profits that will fulfill their mission, not ones that they fear will take their money and fold.

    Good luck!

    • nicoleandmaggie Says:

      Oh, the non-profit thing is more for charity and tax aspects– if we lose money we can at least write it off as a donation.

      I’d feel less bad losing <3.5K than 4.5K…

    • nicoleandmaggie Says:

      Well, that plus they went through something way worse and raised 500K in a single year already and DH is on the finance committee and we know the finances of the school pretty well. (We have actually donated more money to the private school over the past 2 years than what the Montessori needed to pay off all its outstanding debts. Nobody is going to do that for a for-profit) I can dig up the link to that stressful time during a break.

      • Scooze Says:

        It’s good that you’re so involved that you know the school is stable. It always helps to be “on the inside”. :-)

      • nicoleandmaggie Says:

        It’s not really stable, but it is able to do amazing amounts of fundraising and the current management is very good, unlike the previous management. So our prepayment there was partly a political vote of confidence in the change in management. Again, we make different decisions for non-profits.

  9. Psyc Girl Says:

    Oh my goodness – that sounds awful. I would freak out.
    I love this post otherwise, on prepayment discounts. That being said, I have not yet established the income where I can easily do prepayments, so I tend to pay monthly for everything where that is even an option. Someday…

  10. Rented life Says:

    Just wow. I’m not set up to prepay but that makes me consider not doing so. Ouch.

  11. Laura Vanderkam (@lvanderkam) Says:

    Yuck, sorry to hear that happened. Not just for the cash (which is bad enough) but for the trauma when you lose a good childcare situation suddenly. Thank goodness you had a back-up option you could start immediately.

    • nicoleandmaggie Says:

      Yeah, DC1’s private school expanded some recently. They absorbed 8 of the kids, including another one in DC2’s room at the old place. I suspect that’s part of why dropoff went so easy for DH today– he’d thought he’d be leaving hir there for only a couple hours (during his lunch meeting), but he ended up just leaving her there in the morning with no problems. Oh, except ze tried to bite someone when a kid took hir toy. *sigh*

  12. Rumpus Says:

    Sometimes you get the black swan event. Unfortunately, with small businesses it can take surprisingly little mismanagement to sink the company in a shockingly short time.

  13. Updates | Grumpy rumblings of the (formerly!) untenured Says:

    […] guy who stole all that money from the first daycare (turns out to be the ex-husband of an employee, not even the employee […]

  14. On preschools and biting: Part 1– the story | Grumpy Rumblings (of the formerly untenured) Says:

    […] catch new readers up, DC2’s wonderful daycare went out of business because of financial difficulties stemming from a theft.  Ze learned to bite at a second temporary […]

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