Mark Pestronk
Q: In the last recession, the one caused by the pandemic, some travel suppliers went out of business. I expect that the same thing is going to happen again in the coming recession. How can we protect our clients against default by suppliers that keep clients' money and go out of business without providing any refunds? Would it help or hurt us to have our own credit card merchant account where we would keep clients' payments until it was time to pay the supplier?
A: To protect your clients' payments, there are four steps you can take.
First, be on the lookout for signs of financial distress from suppliers, and discourage clients from dealing with those suppliers, including airlines, cruise lines, tour operators and resorts. In many cases, articles in Travel Weekly and the financial press hint at financial problems. You can also read about other advisors' experiences on social media.
Articles in the trade press that quote supplier representatives denying financial problems are sometimes a giveaway, as are articles and direct solicitations promising benefits for clients or advisors in return for early payment, if such a practice isn't typical in the industry. Finally, articles quoting advisors who have waited a long time for commissions are a strong hint that shutdown is on the way.
I realize that my advice will tend to hasten the demise of some suppliers already in trouble. However, my role is to help agencies help their clients and thereby protect themselves.
Second, rely on your host agency, consortium, co-op or franchiser for advice about suppliers. Those organizations know that they need to choose preferred suppliers with care and not just select those paying the highest commissions.
Third, strongly encourage your clients to buy travel insurance that protects against supplier default, if such insurance is available.
Fourth, assuming that your agency is not the credit card merchant, strongly encourage or require your clients to pay by credit card. Although a refund is not guaranteed because the Fair Credit Billing Act does not protect certain sales, most credit card issuers do provide refunds most of the time in case of supplier shutdown.
If your agency is the credit card merchant, be sure that the client has agreed to a disclaimer stating that you are not responsible for the default of suppliers and that the client agrees not to initiate a chargeback against you. You also need to disclose the name of the supplier.
If your agency is collecting money for a large group or charter, it's a good idea to negotiate with a possibly shaky supplier to keep the money in your credit card merchant account as long as possible before you pay the supplier.