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• Leading schools
  • Managing schools
    • Helping schools use resources well
      • Securing the best for less
      • The principles of school finance
      • Financial planning and budgeting
      • Strategic financial management and budgeting
      • Financial monitoring, reporting and evaluation
      • Cash management
      • Evaluating financial resource management
      • Creating capacity for strategic and operational leadership
      • Procurement
      • Personnel and benefits management
      • Leading learning and teaching
      • Managing the organisation
      • Effective use of resources: case studies

Cash management

How schools can manage their cash holdings effectively, through choosing the right bank accounts and developing procedures for cash flow forecasting, invoicing and credit control.

Cash management options

Schools can choose to operate their cash management and payment processes in a range of ways. Some schools manage most of their payments through their local authority, using electronic order and payment systems. In these cases most of the school’s budget is held centrally with the local authority and the school might only use its bank for petty cash and emergency payments.

Other schools have a portion of their budget from the local authority paid into their bank account on a monthly basis. From this monthly income the school will pay all of its expenditure, including staff salaries, income tax and pension payments. In between these two extremes there are other levels of bank account and cash management.

Bank and building society accounts

Most banks and building societies offer a choice of accounts for businesses, including cheque and deposit accounts, interest-bearing cheque accounts and higher-interest notice accounts. A school’s individual circumstances will dictate which banking arrangements are most suitable, so it is important to investigate your requirements and match these to the services that are available. Maintained schools should consider their local authority’s Local Management of Schools scheme to ensure that the correct procedures are followed when setting up a bank account for its public funds. Governors of maintained schools can nominate the bank they wish to use, but need to receive approval from the local authority.

Schools must ensure that there are robust controls over all methods through which funds may be withdrawn from accounts, including standing orders, direct debit mandates, BACS payments and salary payments. These controls should be detailed in the school’s financial procedures manual.

Cash holdings

Many schools deal with cash on a daily basis, for example through handling payments from parents for meals, trips, materials and other educational activities. Cash and cash records should be held in secure safes and containers and access should be restricted to authorised personnel. In most cases, cash receipts should be paid directly into the bank.

Cash expenditure relating to public funds will usually be limited to the use of petty cash, which is used to make small purchases up to a value specified in the school’s financial procedures manual. A school debit or credit card is also a form of cash. Strict controls for the use of purchase cards should be outlined in the school’s financial procedures manual. Some maintained schools also have investments which have been built up through trust funds and other private accounts. Schools are not allowed to take out high-risk investments and should concentrate on lower, guaranteed returns.

Cash flow management

Schools need to prepare cash flow forecasts to ensure that they will have sufficient funds available to pay for their operations. As grant entitlements and spending plans become clear, it should be possible to profile projected income and expenditure on a month-by-month basis for the year. This information can be used to create a cash flow forecast which will highlight where any cash shortages may arise. The forecast should be updated on a regular basis to include actual income and expenditure, as well as revised projections for the rest of the financial year.

Invoicing and credit control

Every school should have a comprehensive credit control policy to ensure that those who owe the school money are invoiced promptly and that payments are properly recorded. Income should be collected through the school’s invoicing system. It is a statutory requirement for schools to have a charging and remissions policy and schools cannot charge for any activity without having one in place.

Debt management is a significant issue for independent schools but also affects schools in the maintained sector. The financial procedures manual should include a policy covering the collection of any debts due to the school. The school should also have a set procedure for writing off debts as irrecoverable.

Further information

• Certificate of School Business Management