Current surge in travel bookings could cause severe financial problems for many SME travel agencies
Those who haven’t already got in place sufficient credit lines and efficient, automated financial payments systems could well face trading difficulties – and in extreme cases even go out of business.
Payments company Nium reports January’s net sales for travel agents are up by 700% year-on-year – an unprecedented situation placing enormous strain on payment processes.
Spencer Hanlon, Global Head of Travel Payments and Head of Europe at Nium comments: “We all know that the negative volatility caused by the various waves of the pandemic – resulting not only in unsustainable lower levels of travel bookings but also painful cancellation and refund bottlenecks – has sadly resulted in many great travel companies closing.
“But even sadder still is the fact that this current ‘positive volatility’ as bookings surge will cause many to face trading difficulties and cash-flow problems – and in extreme cases could well lead to further closures.
“Why? Too many travel agencies – particularly the SMEs – are still reliant on old-fashioned credit cards to finance their businesses. Such creditors are unlikely to allow them to rapidly increase their credit lines, despite the bookings flooding in, or offer them flexibility in how to manage payments efficiently in order to maximise cash.
“The smarter ones amongst those at risk might well decide to turn away bookings and sadly miss out on this much needed once-in-a-lifetime boom. Whilst those who don’t could quickly find themselves in a very difficult situation where they can’t fulfill bookings. In extreme cases, if word gets around of travellers stranded at the airport or hotel reception, then they risk entering bankruptcy even.
“Just to be clear, this surge is like nothing ever seen before: our travel agency clients overall have seen net sales of 700% higher than the same period in January 2021. Even a well-prepared company would struggle with that.
“It is very important to stress the ‘net’ element here: many travel suppliers and intermediaries out there are reporting strong increases in trading, but these ‘strong’ increases are often comparing gross sales with gross sales. However, when you factor in the cancellations they had (in some cases above 100%), in fact last year’s sales were really much lower than most will admit – and that’s the financial shape they are in, ironically making a sudden boom more of a threat than a help.
“So what do we recommend to travel agencies who find themselves in this situation? Here are our top five recommendations:
1) Maximise cash at all times: do more with less and pay only when payment is due, and not before. 2) Have complete visibility of all transactions: reconciliations shouldn’t be time consuming. 3) Speed up your processes: no more twice weekly payment schedules, those days are gone. 4) Ensure everything is easily controllable: you need to be able to specify precisely the currency of use, where the transactions can occur, and control the dates on which transactions can be executed. 5) In short: automate all financial payments processes or you´ll forever be at the mercy of volatility.
“We recommend that these are implemented immediately and permanently. Who knows if there will be another wave soon or in years to come? Or if environmental challenges will bring us more volatility in the form of extreme weather events? Be prepared.”
