With global interest rates hitting historical highs – currently at 5.25% in the UK following an increase recently and 5.25% in the US – and economists anticipating further increases, many businesses across the whole of the travel spectrum are finding it harder to meet their debt commitments or raise further cash.
However, it is often overlooked that one of the main credit needs for travel businesses, particularly hotels and airlines, is to fund the delay between the provision of services and receiving payment for them.
Whilst this may have been manageable in a low-interest rate environment, this can no longer be sustainable. Not least as many travel businesses are still paying higher than average interest rates for their credit, due to the poor credit records they gained during the global pandemic.
Spencer Hanlon – from real-time global payments leader Nium – comments: “We frequently see travel businesses waiting 60 days, and more, to get paid. At the same time, we see people funding that gap using credit cards, easily paying 12% or more in annual interest rates. That means they’re losing 2%, and more of the value of their services, in just waiting to get paid!
“If your bank put transaction fees up by 2% per transaction, you’d be angry, and rightly so. And with the current uncertain economic outlook, it is quite possible that even higher levels of interest rates are coming.
What’s the answer to this problem? Essentially getting paid more quickly as slow collection affects the bottom line.“But why are so many travel companies so slow in collecting payments? Far too many travel businesses are still using 1970s era legacy systems to collect payments, often arriving via old fashioned physical credit card payments or traditional bank transfers.
“In this day and age, there is simply no justification for this. The secret to faster collection ultimately lies with a mixture of automated processes and the use of virtual credit card payments, or ‘VCCs’. This combination can significantly reduce costs and improve productivity by automating booking reconciliation and providing greater protection against failed and non-refundable supplier payments.”
Nium recommends that companies take the following actions to get paid more quickly:
- Have complete visibility of all transactions: reconciliations shouldn’t be time consuming.
- Speed up your processes: no more twice weekly payment schedules, those days are gone.
- 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.
- Adopt modern fintech payment methods that are both instant and low in cost, most probably in the form of virtual credit cards (but other options exist).
- In short: automate all financial payments processes or you´ll forever be at the mercy of volatility of all kinds, be that interest rates, inflation, or booking cycles.
