Travel Trust Accounts – Cashflow Nightmares or Sensible Business Strategy?
For many travel companies, especially start-ups and small businesses, trust accounts provide the only available and affordable solution to meet the Package Travel Regulations – especially if having a merchant account is a requirement.
At Trust My Travel we often get told by prospective members that their businesses simply cannot operate with the cash flow being tied up until the customer has travelled.
While there are solutions such as supplier failure protection insurance to release funds before travel these can add additional costs and do they really solve the problem for your business? Actually, by employing a sensible approach, including working hard with trusted suppliers, the disciplines of a trust account should strengthen your business strategy and not be a consideration to your cash flow.
More often than not the travel businesses that come unstuck and call in bonds, or go into administration, have spent their clients’ funds on other areas of their business rather than the holiday the customer has paid them for.
It is easy to take a cursory look at your cash flow management, especially when starting a travel company, and feel that your projected overheads already exceed available monies in the bank. If you then need to find funds to pay your ground handlers, hotels et al how will your business survive? The simple answer is that you are doing what so many other businesses do – you wouldn’t get paid in advance if you were a lawyer dispensing legal advice nor would you pay for your accounts to be done by a third party before they were completed.
Consider that most of the larger travel companies are distributing to third parties and probably do not receive funds for the trip until after travel.
Undoubtedly one of the most important things in easing the pressure on your cash flow is to establish a good relationship with your suppliers, and this is the case even if you are a startup. You may not have any trading history but look to your trust account supplier – do they have a network of suppliers/members around the world whom you can use?
If you are set on using your own suppliers will they accept a card guarantee to confirm the booking (there are many virtual card schemes that can facilitate this) with payment being guaranteed by the card scheme or the trust account supplier? For instance, the Trust My Travel will automatically pay a supplier on customer check out so the supplier has confirmed payment and you have also saved the hassle of paying their invoice. The suppliers are only concerned that they get paid in time so these are a number of very simple tools that you can employ. Obviously, as you build up better numbers and a better reputation your suppliers are likely to work even harder to assist you.
Many trust providers also allow you to release a proportion of your funds to pay your suppliers in advance, on payment of an insurance premium. This is typically a small per person sum of money but can easily help you run your business. The bottom line remains though that the funds that you receive from your customers are to pay for the holiday they have booked for you – in our view, they only become your funds when you realise your profit i.e. they receive their trip in full.
On the surface trust accounts can seem to be restrictive to your cash flow and to your business. Other than offering 100% financial protection to your customers though they can also be a great business discipline ensuring you only spend the money that is yours and ultimately ensuring your business survival.
Trust My Travel provide financial protection to travel companies around the world, in addition to offering merchant accounts and local supplier payments. To speak about your travel payment needs including cash flow planning please contact us at firstname.lastname@example.org
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