High inflation is hitting travel companies hard due to payment collection delays, argues Spencer Hanlon of payments platform Nium Travel
Inflation hitting 8% in some regions is costing travel businesses money as the real value of payments falls by the time they are received.
But companies should no longer have to wait to get paid because the technology is there to resolve the problem.
Nium Travel is a global platform for money movement in travel. We frequently see travel businesses waiting 60 days or more to collect payments. But at a time when inflation is at 8% in the US and Europe, a delay of 60 days in collecting payments means the money has lost almost 1.5% of its value by the time it hits your account.
If your bank added fees up to 1.5% per transaction you would be angry and rightly so. Yet with the current uncertain economic outlook it is quite possible high levels of inflation will continue for some time and the inflation rate could even rise higher.
The answer is to get paid more quickly.
Why are so many travel companies slow in collecting payments? Because far too many travel businesses are still using 1970s legacy systems to collect payments, often via old-fashioned physical credit card payments or traditional bank transfers.
There is no justification for this. Of course, you can place pressure on partners to pay quicker, but the secret to fast collection ultimately lies with a mixture of automated processes and use of virtual credit card payments or VCCs.
This combination has the benefit of being more cost effective and time efficient, for example doing away with painful reconciliations.
The problem of poor payments technology is not just a problem when it comes to currently high inflation. The peaks and troughs of Covid-19 resulted in high levels of cancellations which caused chaos with unautomated payments systems.
More generally, an unoptimised payments system means you must have extra money laying around in your business to fund the gaps between paying out and collecting.
We strongly recommend you treat this as a wakeup call for your business. In the current climate of geopolitical volatility and Covid uncertainty, who knows what is next? Start being paid promptly and free up time and money to focus on running your travel business.
We recommend travel companies automate all financial payments processes to get paid more quickly, speed up processes, have complete visibility of all transactions, and ensure everything is easily controllable.
Reconciliations should not be time-consuming. You need to be able to specify the currency of use, where transactions occur and control the dates on which transactions are executed.
Spencer Hanlon is global head of travel payments at fintech platform Nium
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