Spencer Hanlon from the worldwide real-time payments platform Nium, which offers services to online travel agencies, hotels, and airlines throughout the world, cautions that this year’s more than welcome record summer for travel bookings brings with it the undesirable necessity to expand working capital.
He notes that “despite a surplus of eager customers, a company could easily go under this summer without additional working capital. That’s because, regrettably, a great deal of travel agencies don’t get compensated until after rendering the service or allocating funds in advance.
“Most must use credit to fill this gap, which is sometimes difficult to rapidly acquire when faced with an unexpected windfall in bookings. According to the UNWTO, this is anticipated to occur this year, with booking numbers generally returning to 2019 levels and even higher in certain situations.
The rising volume of bookings may be overwhelming back-office financial personnel throughout the travel chain, which could lengthen the time between providing services and receiving payment.
The fact that these teams were severely depleted during the epidemic and have not yet fully recovered, according to Spencer, will make the problem worse. This is partly because of the worldwide workforce crisis, but it’s also because hiring front-office workers is frequently given precedence.
Nium advises travel agencies who believe they may be exposed to these difficulties to start doing the following things right away:
First, be aware of the financing choices you have so you can move quickly if you ever need them. As soon as possible, start the dialogue with your bank or other prospective sources of finance, being sure to explain and provide evidence of the significant number of bookings you have or anticipate having.
Second, be proactive in your communication with your partners to make sure they comprehend the necessity for fast payments; they might not be aware of the burden that such large volume is putting on you.Consider whether it would be reasonable to create payment terms that would be more advantageous to you, such as requesting payment on a certain day.
Thirdly, while sending or receiving cross-border payments, try to stay away from traditional bank transfers, especially if they are frequent and of modest value. This payment option can be quite slow and involve unnecessary back-office administrative time, which raises your requirement for working capital in addition to being pricey.Instead, make sure you’re utilising the infrastructure for real-time payments to hasten payments, save expenses, and give you more control and visibility over where your money is at any given time. Are you getting your money in the proper currency and on your preferred credit card, bank account, or digital wallet? If not, get a competent provider who can manage everything.
The bottom line, according to Spencer, is that if you take these actions, everyone will be grateful to you and your creditors might be more willing to extend credit because they would better understand your financial status. There will undoubtedly always be a time lag between providing a service and receiving payment. However, if you don’t make every effort to cut this time in half, you’ll at best reduce your profitability and at worst expose yourself to the ironic possibility that your busiest summer will also be your last.
Source- Travel daily