They say cash is king and credit is a risk for every business! The lifeline of a Kenyan travel agent just like any other across the globe is its liquidity.
Kenya is largely a credit market with most customers preferring the ‘spend now, pay later’ mode of doing business. Most corporates have policies that require payment to suppliers be done between 30 to 90 days, a situation that makes a bad situation worse. Since Kenya, moved to a fortnight remittance in the year 2016, travel agents struggle to get their clients to pay for tickets in cash or within the 14 days as required by airlines.
A number of agents have shared with the KATA Travel weekly newsletter how they are surviving in a fairly difficult environment. Patrick Kamanga, Managing Director, Deans Travel Centre Ltd, Mombasa talks of how some customers would pay for tickets purchased online through credit cards or cash but still want travel agent to offer them tickets on credit. “In this day of Online bookings it has taken a different route, customers both Individuals and corporate wanting to purchase flight tickets online and pay cash or credit card for the same but when they encounter issues, they move back to the agent and want the very same ticket issued and at a discounted service fee rate plus credit on the same and they fail to pay on time or even at all!”
Non-payment or delayed payment by clients forces a travel agent to seek alternative financing solutions in order to settle payment with IATA. This presents an array of other challenges that come with financing including lack of security to guarantee financial bridging facilities, high financial costs and business distraction by having to focus on cash flow management instead of business development. Failure to pay to IATA results to instant default that takes away an agents ticketing rights, literally crippling their businesses! Mr. Steve Owire, managing director, Seguro Tours and travel says “with the advent of frequent remittance we struggle to bridge the financial gap! It is even more expensive when you take a bank facility and keep extending it as you wait for your client to pay. Some clients end up not paying at all. It is painful!”
Debt collection often strains the relationship between a business and their clients. It is even worse for a travel agent who is under pressure to collect immediately after issuing a ticket, sometimes, even before the client has travelled. This has for many years encouraged an infamous habit of clients hoping from one agent to another while leaving behind huge debts. “There is need for client sensitization so that they are able to appreciate the rapid changes in the travel industry. Clients need to understand that their agents are required to remit payments to IATA within 14 days after ticket is sold” Said Mr. Owire.
Selling on credit requires one to be diligent in their record keeping, one has to keep an account for each client and keep tracking their credit balances. Depending on the volumes of transactions done on credit, it may be voluminous and requires additional resources to manage the debt collections and reconciliations. This becomes an additional cost to the company and affects its financial performance.
The risk of writing off bad debts is a live factor for any business selling on credit. Travel agents are constantly battling with non-payments. Some have had to go through litigious processes or engage debt collectors in an effort to recover from their long overdue owing clients. Mr. Kamanga says, “agents have been forced to sell personal belongings, get huge loans to pay up Flight bills, and in this way you lose not only what you were to earn but more, some agents have closed shop due to debt”
In conclusion, debt is stressful for both the lender and borrower. Ms. Florence Maina, Managing Director, Miles and beyond travel and a KATA Board member thus summarises, “It is safe to say that getting out of debt is closely linked to a person’s overall happiness, because let’s face it, life is not much fun when your finances are being squeezed tightly each month and you are struggling to make debt repayments. Therefore, only way you will ever permanently take control of your financial life is to dig deep and fix the root problem. Avoid debt!”
Kenya Association of Travel Agents.Back to posts articles