Mark Pestronk
Q: Every one of our corporate clients pay us by credit card. Now, for the first time, we have been approached by a company that does not or will not use credit cards. The potential volume is quite high. Should we agree to take on this client? If so, what protections do you recommend to safeguard against nonpayment or late payment?
A: In the days before credit cards were the predominant method for paying for airline tickets, lots of travel agencies defaulted to ARC when their corporate clients did not pay on time. ARC then terminated their agency agreements in 30 days, unless the agencies paid out of their own funds.
Many companies probably do not appreciate the fact that if they do not pay their travel agency, agencies must pay for the tickets anyway. So, my first recommendation is to make sure that the prospective account understands why you require timely payment.
Next, you have to evaluate the likelihood that the account will indeed pay on time. Check the company's Dun & Bradstreet Business Credit Report and get references from prior travel agencies and other creditors. If they have no Dun & Bradstreet report and no references, give very serious consideration to declining to do business with the prospect.
If it is a new company that hasn't had the chance to get credit cards, you can help it apply for a Universal Air Travel Plan card account, which should not be difficult to obtain. You can then charge all tickets and service fees to that card.
If the account nevertheless insists on paying by check as a matter of principle or for some valid commercial reason, you can do business with it if six conditions are met:
- First, you must obtain a security deposit equal to several weeks' anticipated tickets.
- You need to invoice the account each time a ticket is issued, and the account must pay by check or bank transfer within seven days.
- If the account fails to do so, you must have the right to take the money from the cash deposit.
- The account must replenish the deposit to its original level within seven days.
- You must retain the right to stop ticketing if the deposit is not replenished.
- Most importantly, someone at your agency must closely monitor the account's payments and have the authority to tell your staff to cease ticketing.
The requirement of daily invoicing and seven-day pay will help ensure that you get the money before you have to remit it to ARC. However, there is still some risk because if you issue a large number of tickets on a Friday and invoice for them on Monday, the account does not have to pay you until three days after you must pay ARC, assuming that you have a net remittance due to ARC.
The first five requirements should be put into an agreement with the company. The agreement should also provide that, on termination, you will refund any of the security deposit after all outstanding invoices have been paid.