Many businesses across the entire travel spectrum are finding it more difficult to meet their debt commitments or raise additional funds as global interest rates have reached historical highs, currently standing at 5.25% in the US and the UK respectively after an increase recently. Economists anticipate further increases.
But it’s frequently forgotten that one of the key credit requirements for the travel industry, notably hotels and airlines, is to cover the time between providing services and getting paid for them.
Even while a low-interest rate environment may have made this manageable, it can no longer be sustained. Not least because many travel companies now pay interest rates over the national average on their credit cards because of the bad credit histories they developed as a result of the pandemic.
Real-time global payments pioneer Nium’s Spencer Hanlon makes the following observation: “Travel companies frequently have to wait 60 days or longer to receive payment. At the same time, we see people using credit cards to fill the gap, paying annual interest rates of easily 12% or higher. In other words, by simply waiting to get paid, they are losing 2% or more of the value of their services.
You would be upset, and rightfully so, if your bank increased transaction costs by 2% per transaction. Additionally, it is entirely feasible that even higher levels of interest rates are on the way given the current uncertain economic outlook.
What is the solution to this issue? Basically, receiving payment sooner, as delaying collection impacts the bottom line.But why do so many travel agencies take such a long time to collect payments? Too many travel agencies still rely on antiquated systems from the 1970s to collect payments, which frequently come in the form of manual credit card payments or conventional bank transfers.
There is simply no excuse for this in this day and age. The use of virtual credit card payments, often known as “VCCs,” in combination with automated procedures is the key to expediting collection. By automating booking reconciliation and enhancing protection against unsuccessful and non-refundable supplier payments, this combination can dramatically save expenses and increase productivity.
Nium advises businesses to take the following activities to receive payments more quickly:
Have total transparency over every transaction; reconciliations shouldn’t take long.
Increase the speed of your operations; the days of twice-weekly payments are over.
You should be able to exactly determine the currency to be used, the locations where transactions may take place, and the dates on which transactions may be conducted. Make sure everything is easily adjustable.
Adopt instantaneous, low-cost, modern fintech payment mechanisms, most likely in the form of virtual credit cards (but there are other choices).
To put it briefly: automate all financial payment operations else you will always be subject to volatility, whether it be caused by interest rates, inflation, or booking cycles.
Source- Travel daily