Norman Gage
With TMCs today having numerous elephants in the room, it is understandable that the market might not have noticed the next entrant is waiting quietly outside. Its name is More Frequent Payments, or MFP, or multi-faceted placoderm.
This has to do with IATA's recent proposals to change the frequency of payments from travel agents to airlines via its central clearing house payment system, BSP or Billing Settlement Plan. No travel agent can issue airline tickets — and thus exist as a travel agent — unless it is licensed by IATA who lays out the financial rules, including payments, by which all travel management companies operate.
Every IATA agent (ie accredited TMC) has an amount of money equal to the value of bookings made in a set period automatically transferred by direct debit to a central account on a given date. The money is then distributed to the carriers in proportion to the bookings.
The frequency has always been monthly but IATA wants to increase it to fortnightly, or twice a month.
This is multi-faceted because like the chaos theory it's not just one set of cause and effect, but many.
This view is in light of two announcements outside of the industry.
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What seems like a slight difference could have a larger impact © Heike Brauer/iStock
The first being a proposed hike in interest rates. The Bank of England has for the past six months been hinting at how and when it will raise interest rates. It now seems inevitable that this will happen before the year-end.
The current situation allows a TMC to fund late payments from its customers. If its bank overdraft facility permits, a TMC can carry late payments without too big a hit on the bottom line. But this will have to change with a rate hike, as the despite the attention that TMC fees have attracted, margins are wafer thin and volatile.
Secondly, the UK government is so concerned that SME business are receiving late payments that they have had to create the role of 'Government Business Tsar'. His job is to try and get the £26.8 billion of owed money into the hands of those who need it most to keep their businesses alive. Paying late may not be the fault of the TMC's direct customer, but there will be a knock-on effect if they themselves are receiving late payment for goods or services.
So if you add points one and two together, to point three, namely that in 2016 TMCs will have to start paying BSP every 14 days instead of every month, the question — or result — will be how many elephants can you get in a room?
This is not necessarily a new problem, but it will need a new approach with customers by TMCs. TMCs' businesses seem to be driven in cycles, in that sometimes the sales team is king and at other times it's the operations team.
Now seems to be the time for finance to take a strong lead.
- Norman Gage is an industry veteran