The real cost of money
Cash flow challenges are leading to stagnation in the travel industry
When we talk about service fees in corporate travel management, the majority of the discussion centers around SLAs [Service Level Agreements] to which we, as service providers, agree to be held accountable.
Telephone and email response times, best fare guarantees and generated savings are just some of the things hotly negotiated by customers who seek the most for their money.
And yet, more and more, it is not the cost of ‘time’ in service delivery that baselines our service fee to clients, but the cost of ‘money’.
Cash flow in Travel Management is becoming one of the biggest challenges of the decade. With clients contracted to settle their invoices within an average of thirty days, and BSP [Billing and Settlement plan] requiring payment within seven, it is easy to see understand why the landscape is challenging.
But it is the knock-on effect of this cash flow cycle that presents the bigger danger to the industry in the region.
While there may ultimately be profit in a business, today’s travel companies are forced to juggle available funds to settle with BSP in a timely manner leaving little room in the budget for things like staff training and technology investment.
This is resulting in industry stagnation as many companies cannot finance development and growth, forced to focus instead on meeting the financial rules and regulations of IATA/BSP.
Some corporate customers exploit this cash flow weakness, moving their business between multiple agencies and never paying on time. In the traditional set up, where clients settle direct with their TMC, customers who do pay on time suffer at the hands of such debtors.
And it is not just airline bookings that feed the cash flow spiral. The outdated pre-paid voucher system, so prevalent in the region for hotel bookings puts added pressure on travel providers to pre-finance their clients travel and perpetuates a problem that desperately needs a solution.
Changes in client behaviour is of course a large part of the fix. TMCs need to work on partnerships with their clients, explaining the benefits of corporate credit cards and what they offer; including insurance, loyalty rewards, cash flow management and potential savings.
For clients that are not ready for the benefits of corporate cards, TMCs need to re-evaluate their own credit policies; maybe mirroring those of the credit card companies.
For example, offering clients 15 days credit in the first three months of a contract and then, if they continue to pay on time, 21 days from month four, and 30 days credit after that.
In this way the industry can reward good behaviour and help itself break out from the cash flow cycle that halts its own development.
Travel trade associations such as DTTAG [Dubai Travel and Tour Agents Group] can work in the best interests of the industry not only by vetting potential suppliers and protecting the industry from bad behaviour but by supporting agencies, as a group, in blacklisting bad debtor clients, and promoting payment management solutions.
As more BSPs across the region move to weekly reconciliation, TMCs will be forced to think strategically when it comes to the costs associated with pre-financing their clients’ travel.
Nowhere is this going to more evident in the year ahead than in Dubai, where the introduction of both a larger BSP Bank Guarantee and weekly reconciliation, in Q4, will shake up a market that has survived for too long on easy credit.