As Travel Management Companies (TMC’s) become more restricted by shorter time frame repayment credit facilities imposed by airline and hotel terms and conditions, this inevitably affects payment terms then offered on to clients. Here we take a more in-depth look into what payment options are available, the pros and cons of each option and we look towards the innovations on the horizon.
WHAT PAYMENT OPTIONS ARE THERE?
Credit cards are easy to use and universally accepted. However, they need to be personally managed by individuals – some companies do not wish to issue cards to all employees because of their level of management or perhaps they are freelance. Using credit cards when the spend is large can result in increased issues from a data perspective.
Benefits of using credit cards include related loyalty points and prizes, however, these are becoming less favourable now. (companies slashing the value of their points package*). The individual’s account is transferrable enabling an easy switch of provider or enhancements such as multi-user.
Cons include merchant fees, still prevalent when paying by credit card. Reconciliation can be tricky as data supplied for each transaction will be minimal, i.e. just the merchant name. To claim VAT back in the UK, users will need to request a VAT receipt at time of purchase as credit card statements will not suffice.
Finally, individuals booking on their own credit cards leads to more travel leakage and booking outside the TMC making it difficult to enforce any policy controls and to effectively manage duty of care across the travel programme.
TMC’s are able to offer a lodge card facility whereby all company expenditure is charged to one credit card number which is centrally ‘lodged’. They are easy to use and widely accepted but data consolidation can be made more complicated if spend is high.
Benefits include similar related loyalty points and prizes associated with individual credit cards. As with credit cards, lodge card accounts are transferrable enabling an easy switch of provider or enhancements such as multi-user.
Cons include merchant fees associated with credit cards and lodge cards alike. Again, VAT receipts in the UK will need to be collected at point of sale as statements will not suffice. Queries around charges can be difficult to resolve and will require thorough investigation by the TMC.
Hotel Billback Services
Business travellers are able to stay at hotels without having to pay on departure – the hotel will then charge the TMC who then invoices the client. This payment method can be used for hotel stays, conferences and venues.
Benefits include less administration for the business traveller, removing them from the invoicing process. TMC’s can deal directly with the hotels and venues.
Cons include the fact that whilst most TMC’s can offer this service, there may be limitations as to which properties will qualify or comply. There is additional administration on both sides and often TMC’s will need to employ additional staff to ensure all billbacks are reconciled. There is also the time factor allocated with sending and processing invoices after the stay has taken place as well as a significant extra cost in fees.
Using a credit account with your TMC is a simple method of payment in terms of time saved by your team and travellers in processing expense claims, claiming back VAT and reviewing invoices. That said, expense management tools are making this consolidation easier as often they interface directly with your travel management tools.
Benefits include dealing with just one stakeholder, your TMC, who will manage your payments and queries whilst providing solid data. Paying by account should mean avoiding most of the usual merchant fees. The TMC can provide you with an HMRC approved invoice that your accounts department can then use to reclaim VAT on hotels and other applicable suppliers.
Cons include the variable terms and conditions applied to credit limits by the TMC – these may not be as favourable as the lodge card benefits. Providing an account facility is not something all TMC’s can offer and as a result of the tightening payment terms they are now under, it is largely being phased out as a practice.
More recently, business travel clients have been adopting virtual card payment solutions such as the Conferma Card (CSP), the market leader in virtual card technology. The virtual card is a third-party settlement card which allocates a unique card number for each booking. As the traveller name and cost centre are stored with the booking, reconciliation is simple and the data is good.
Benefits include being able to book, pay for and reconcile invoices without the need to issue individual cards to travellers. The virtual cards are now directly integrated with most online booking tools and reporting tools to speed up transactions, processes and enable enhanced control over funding amounts, transaction expiry dates, merchant category controls and data security.
The reference data captured through virtual cards is much cleaner because it is possible to mandate that certain data is present before the card number is generated. Many banks are already working with virtual payment cards, Conferma already work with AirPlus International, American Express, Barclaycard, HSBC, MasterCard, US Bank and WEX.
Cons are minimal to date, but there could be an education piece here as companies and stakeholders may require a better understanding of this relatively new process. Like with most new systems, there will be time required for implementation and training.
THE FUTURE OF BUSINESS TRAVEL PAYMENT SOLUTIONS
There is no doubt that advancements in technology will provide the biggest innovations for payment solutions, but what future innovations can we expect to see?
A move away from the credit card?
There has been a definitive move away from cash payments with contactless and mobile solutions such as ApplePay being more regularly used for even smaller payments such as a can of soda. Banks are now tapping into this with new apps providing users with advice and insights on spend activity, so we could see more solutions launching in this area.
Full payment integration winning over users
Popular apps such as Amazon have managed to completely immerse the payment part of the process so that users are almost unaware of the costs they are incurring – urging higher and more regular spending as well as a loyalty towards that provider. Becoming a preferred provider will also provide a more comprehensive overview of customer spending habits helping build targeted loyalty campaigns and increase customer retention.
A MOVE TOWARDS DIGITAL CURRENCIES SUCH AS BITCOIN?
Digital currencies have the potential to revolutionize the financial services industry by improving efficiency and traceability impacting foreign exchange, international remittances, clearing and settlement of securities. Although not universally supported yet by governments and banks, financial organisations such as Visa, Swift, Nasdaq and UBS have started to explore potential applications. It is clear, however, that although the benefits of digital currencies are clear for merchants, users are yet to be convinced – one to watch!
Whilst some of these payment solutions may require more development, there are already great payment solutions available. Most clients will benefit from a combination of solutions dependent on requirements and internal processes. Although around since 2008, the impact of the virtual payment solution in still making headlines today with new partnerships and seamless integration. With a few years in place, we can now clearly see the benefits from clarity of transactions and reconciliation to helping reduce fraud through card theft, loss or cloning.
It is encouraging to see innovations that continue to benefit the merchant, the TMC, the client and the end user – the business traveller. If you would like to discuss any of the payment options in more detail, please contact your Hillgate Account Manager.