This year’s more than welcome record summer for travel bookings brings with it the unwelcome need to increase working capital, warns Spencer Hanlon from global real-time payments platform Nium, which provides services to online travel agencies, hotels, and airlines around the world.
He points out that “without increasing working capital, a company could potentially be wiped out this summer despite an abundance of willing clients. That’s because, sadly, too many travel companies don’t get paid until long after providing the service or laying out money in advance.
“Most have to fund this gap with credit, which is not always easy to access quickly when facing a sudden booking windfall. This is predicted to happen this year, with levels of bookings broadly returning to 2019 levels and even higher in some cases according to the UNWTO.
“Meanwhile, the delay between providing services and getting paid could be exacerbated by back-office finance teams across the travel chain being overwhelmed by the increased level of bookings.
Spencer believes that this problem will be further aggravated by the fact that such teams were cut heavily during the pandemic and have not yet returned to full capacity. This is in part due to the global labour shortage, but also because priority is often placed on recruiting front-office staff.
To overcome these challenges, Nium recommends that travel companies who feel they might be vulnerable to this consider taking the following actions immediately:
- Firstly, understand what credit options are available to you so you can act swiftly should you need it. Start that conversation with your bank or other potential sources of credit sooner rather than later, making sure to explain and prove the high volume of bookings you have taken on or anticipate.
- Secondly, communicate proactively with your partners to make sure they understand why you need prompt payments; they may not know the strain such high volumes are placing on you.Ask yourself if it might be reasonable to introduce payment terms more favourable to yourself, such as asking to be paid on specific dates.
- And thirdly, try to avoid old-fashioned bank transfers when making or receiving cross-border payments, especially if they are of high volume and low value. This payment method is not only expensive, but it can be very slow and add needless back-office admin time, increasing your working capital needs.Instead, ensure you’re capitalising on real-time payments infrastructure to speed up payments, reduce costs, and give you greater control and visibility on where your money is at any time. Are you receiving money in the right currency and in the digital wallet, bank account, or credit card of your choice? If not, find the right provider who can handle all of this.
Summarising, Spencer states: “If you follow these steps, everyone will thank you and your creditors might be more open to increasing credit, as they would more easily understand your financial situation. Of course, there will likely always be some gap between providing a service and getting paid. But if you don’t do your best to shorten this period, then at best you’re reducing your profitability and at worst leaving yourself open to the risk that your busiest summer could, rather ironically, be your last.”
