Travel Management Companies (TMCs) have called for tighter credit policies to be introduced across the industry after admitting they were suffering from customers taking up to 150 days to pay them for their services.
In a roundtable debate hosted by Arabian Travel News TMC heads said that they were being forced to act as money lenders - pre-financing their clients’ travel, while at the same time having to meet strict fortnightly BSP (billing settlement plan) payment cycles with IATA.
Sunil D’Souza, country manager – UAE & Oman, Kanoo Travel described credit collection as being the “biggest risk to a travel company’s business today”, while Benjo van Laarhoven, executive vice president, Alshamel International said it was the “biggest worry that wakes me up at night.”
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In many cases the TMC execs said they earned no revenue on transactions at all. “Once 120 days elapses, you’ve earned no money on those transactions,” said Mark Reed, general manager, Arabian Pacific. “You’ve been paying for it. And you can’t do anything else with that money.”
Asim Arshad, chief executive officer, Orient Travel Services agreed: “The biggest challenge all of us face is collections and receivables. There’s nothing bigger than that. If a sale is delayed by three months, 120 days or 150 days - which is the norm here - then you land up paying much more to the bank then you’ve actually financed that organisation.”
And with BSP set to move to a weekly payment cycle later this year, the burden placed on travel agents’ cash flow will be even greater. “I am already suffering from customers who are paying me at 120 days,” said van Laarhoven. “When BSP and IATA are having this one week cycle we will have to subsidise even more.”
TMCs said it was common for corporates to exploit the situation by switching freely between different travel companies and in many cases not paying at all. D’Souza estimated that Kanoo Travel lost “three or four out of ten” customers by refusing to offer longer credit terms than 30 days.
TMCs now want an industry wide clampdown on credit policy as far as corporate clients are concerned.
“If we all stood together and said no one in our industry will offer anything more than 30 days credit then no corporate will get anything different,” said Reed. “And if they [corporates] go round to eight agencies and we all said we only give 30 days as a maximum rule – then the corporates wouldn’t be able to take the Mickey.”
“There are only about 25 to 30 TMCS who control 98 percent of corporate business,” added Arshad. “If these travel agencies got together to agree on some proper credit lines it will change the whole perception [of travel companies] because our income will change.”
Laarhoven suggested the trade should work together to come up with industry standards which could be implemented across the board, similar to policies imposed by credit card companies. “What they do is they say to customers you have to earn your credit. You have 30 days; you can earn your 45 days after we have seen that you have paid your bills every month. Or your credit limit is now one million – I can give you two million after you have paid all your bills. We can create some standards.”
He called for support from DTTAG [Dubai Travel and Tour Agents Group] in implementing such policies. “Let’s try to get some industry standards here. I think that’s what DTTAG should be worried about.”
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Aug 2, 2010 , United Arab Emirates
sounds like a great idea in theory but it wont work in this market im afraid. As soon as some agents start turning down account what do you think others will do? this has always been a discount market and its not going to change.