One of the biggest challenges for small tourism operators is ensuring that they get paid in a timely manner. For many operators, cash at the door is a common payment method. But there are obvious downsides to being dependent on a cash only business. With the growing popularity of online bookings, taking payment in advance via credit cards or PayPal can be a great way to maintain a positive cash flow and even reduce no-shows and cancellations.
Some business owners, however, are reluctant to accept payments in advance. Some of the reasons I have heard include cancellations due to weather, inability to meet tour minimums, or costs of credit card payments. My response, when faced with these reasons is simple, "Do you expect your tours to cancel more than 50% of the time?". Invariably the answer is "No".
If you run your business with the expectation that your tours will cancel due to weather, that you will not meet your minimums, and that the costs of accepting credit cards are too high, then you are focusing on the wrong areas of your business. The better option is to look at what your average cancellation rate is, over the course of your season, and base your payment structure on that. If, for example, you only cancel 10% of the time, then why not accept payments in advance and worry about refunding the 10% when it happens. The benefits of having the cash in the bank for the other 90% of your bookings is pretty compelling.
The costs of accepting prepayments via credit card are obviously higher than for accepting cash on site. But if you consider that your no show and cancellation rates will generally decrease with prepayments, the difference in additional revenue generally outweighs the cost of accepting the credit card payments. Did you know that the more money you process through your merchant account, the better your rates become? So, if you only process a small percentage of your bookings through a merchant account, your rates are going to remain relatively high. If you process the majority of your revenues through your merchant account, quite often you can negotiate a better rate with your merchant provider.
Here are some good rules of thumb when deciding whether or not you should take full payment at the time of booking:
- Tours and activities that cost less than $250 per person are more likely to be impulse purchases which means that customers are more likely to pay for these tickets with their credit card. Tours that are more than $250 may still be considered impulse purchases if they are done shortly before the travel date.
- Tours that are in high demand or short supply. Customers want the comfort of knowing that they have paid for something and that it is confirmed. Just taking a reservation without any form of payment leaves the relationship incomplete. If there is no payment, there is generally no commitment.
- Cancellations and refunds are the exception not the norm. Many operators have told me that they worry about having to refund customers if they have to cancel a trip. Why worry about this? In our experience the average cancellation rate is about 2%, which means that only 2 out of 100 trips gets cancelled. Make sure you have a well explained and visible cancellation policy so customers know what they are getting into when they book.
- No shows are a problem. If you often have no-shows because you don't take payment with your bookings, then prepayment is an excellent way to reduce your no-shows. As with previous examples, customers are much more likely to commit and show up if they have paid for the tour. No show rates virtually eliminated when you implement prepayment for your bookings.
- You have many staff all handling cash and need more control. Prepayment and specifically payments via credit card can help to eliminate handling cash payments and make your tracking your bookings and payments easier. Using Rezgo, for example, gives you the ability to track which agent added a booking and what transactions where applied to the booking.
Take a look at how you are currently accepting payments from your customers. If prepayment is a good option, then to accept prepayments in Rezgo, you'll need to have a merchant account with a payment gateway. You can find a list of merchant partners on our Accept Online Payment page.