Rising travel costs and tighter airline payment deadlines are putting pressure on TMCs to move away from traditional credit arrangements, with industry experts warning that financing corporate clients’ travel is becoming increasingly unsustainable.
“Corporate travel is a very high-value expenditure, sometimes running into the hundreds of thousands, or even millions for some companies monthly,” said Monique Swart, Founder of the African Business Travel Association (ABTA).
“Post-COVID, we saw far more TMCs moving away from this ‘on-account’ option, as the risk and the strain on cash flow were simply no longer viable.”
Linda Edwards, MD of XL Turners Travel, explained that while ‘on account’ models were very popular in the past, it now placed huge financial strain on TMCs.
“Additionally, the costs of ‘insuring’ the debt, legal fees, additional staff to monitor and manage these 30-day accounts, as well as the risk of default, make it very precarious,” said Edwards.
Credit as a competitive advantage
Historically, TMCs used extended credit terms as a competitive selling point, with some offering corporate clients 30 or even 60 days to settle their accounts.
However, Swart said rising travel costs and currency fluctuations had increased the financial risks, particularly in markets where exchange-rate movements could erode profit margins before clients settled their accounts.
“We do still see this risk and strain on cash flow as a big challenge in South Africa and many African markets where clients still expect credit from their TMCs,” she added.
“Occasionally, we still see TMCs offering 30 and sometimes even 60 days' credit, but many feel they don’t have a choice as their competitors are doing the same. Our opinion is that this is simply not a viable business model.”
Billing cycle standardisation
The pressure on TMCs intensified following IATA’s enforcement of a globally aligned remittance period, despite opposition from the World Travel Agents Associations Alliance (WTAAA).
The change removed the flexibility for individual markets to set alternative remittance dates according to local conditions.
At the time, Otto De Vries, WTAAA’s Executive Director, said the standardisation failed to account for different travel business models, particularly high-volume corporate travel.
“With IATA reducing the billing cycle from 30 days down to 14 days and, in some cases, seven days, this has greatly affected a TMC’s ability to give credit via the traditional 30- or 60-day terms,” said Edwards.
Alternative payment methods reduce risk
To reduce their exposure, TMCs are turning to modern financial solutions that shift much of the financial risk away from the agency.
“In South Africa, lodge cards have been a game-changer, with a large percentage of corporates and their TMCs using this with great success,” said Swart.
Edwards explained that lodge cards significantly reduced risk because, while certain components required account facilities, much of the risk was transferred to the bank.
According to Swart, virtual payments have also seen rapid adoption. Beyond reducing risk, she explained that these modern card solutions also provided corporate clients with highly valuable data collection through their centralised accounts.
While corporate clients generally understand the restrictions and complexities of payment workflows and solutions, there is a need for continued education on the various forms of payment.
“TMCs are the lifeblood of the corporate travel sector and part of good supplier management should be an understanding that TMCs are not banks. Banks are banks. For our sector to continue to thrive, having TMCs that are able to focus on servicing a client's account to the best of their ability, as opposed to worrying about keeping the lights on due to crazy credit requirements, is of key importance,” said Swart.
“With the massive advancements made in the payments landscape over the past five years, there is no need to continue with antiquated credit requirements, especially when new payment options give all parties what they require.”
