How credible is giving credit?

The travel & tourism industry has been surviving on credit for ages. However, the pandemic shook the sector and the way of doing business so much that the cash-strapped industry is now re-looking at its credit policies. Is this a long-term solution that is here to stay, or a short-term measure to tide over the crisis?

Nisha Verma

From the smallest of agents, niche tour operators and domestic players to B2B giants, everyone has been following a credit chain. Credit has been second nature to the industry but today, it is what has dented business most.

Why credit?
For many in the business, credit was a tool to get business, says KD Singh, Founder & President, TravelBullz. “Credit has been the tool to acquire business for a lot of companies and often it was misused as a USP by some who have now suffered a lot due to the piling of bad debts. We haven’t seen the industry learning from its experiences in the past and I don’t see that changing too much, especially where a seller doesn’t have any solid proposition or price discounting, and credit is the only tool for them to promote their products.”

Even Pankaj Nagpal, Managing Director, Travstarz Global Group, agrees, saying, “Credit was a very important factor in the travel trade, especially in the corporate sector as well as the B2B segment.”

Sharing that 90 per cent of business earlier happened on credit, PP Khanna, Director, Diplomatic Travel Point and President, ADTOI, says, “Mostly, corporates and embassy business happened on credit. Even if clients went for FIT trips, they used corporate accounts to get credit.”

Where does credit stand today?
Sharing that the lockdown caught everybody by surprise, Deepak Narula, Managing Director, GRNConnect, says, “Credit also got stuck at different levels with airlines, hotels, aggregators and sub-agents. Everybody was holding onto money, and many might not even have money since everybody was stretching when good things were happening.”

He shares that they had their own troubles as well. “However, we had good support from suppliers and agents. But, things are going to be much tighter in future because suppliers have become stringent — their terms have come down drastically; credit period as well as credit limits have come down. Hence, accordingly, we are passing the same to our retail agents. We have also tightened our payment terms because we also have to pay in time or rather in a shorter period of time. Hence, the cascading effect is going to show in the market.”

Khanna also will continue to give credit since they have clients dating back to 25-30 years. “Even for the 10-15 per cent business that has started, and whatever packages we have made, we are giving credit. However, it has not been extended to everyone, as we will see how loyal our corporates have been regarding payments in the past, making sure that our money will not be stuck. If we trust the client, we are giving credit for 15-20 days. In fact, some of our clients are so understanding that they are calling and making upfront payments on their own. For clients who were delaying payments by 2-3 months, we have stopped credit.”

For Singh, being selective has been the key. “We have been extremely selective in extending credits and mostly only against bank guarantees and deposits. Hence, survival was easier during the pandemic. A handful of customers were extended goodwill credit in addition to the deposits they had made based on their payment history. Majority of our business is coming through pre-paid agents and would continue to be so. Credit would not be easily available. However, to facilitate, we have now come up with collections in INR, so agents are able to pay on time before vouchers are generated in local currency and save on remittances. Credit would probably be available to extremely select groups of agents who have promptly made payments during the pandemic,” he shares.

Guldeep Singh Sahni, Managing Director, Weldon Tours & Travels, believes that even getting credit from service providers will be based on reputation. “Those in ticketing are giving credit. The good thing is that people with good credit line are getting it, just like us, since we are not misusing it and are very particular about giving the same as well. From the beginning, we have been very particular about credit. We don’t deal much with people who want to deal only in credit, barring the processing time of 6-7 days with corporates. We believe that once your policies are firm, the market is good for everybody. However, if you bog down in business giving credits, that customer also won’t be good for you since he is only looking for credit and is not interested in your services. He can shift the moment he gets better credit.”

Post the pandemic
Khanna expects things to change. “Now people don’t have money owing to the lockdown and hence they are not able to give credit for long. Even if they do, they will give it to those who have been regular and want to maintain the relationship. Agencies and tour operators will take a decision in the same way a civil rating or credit score does before giving credit to customers. For many in the industry, money is already stuck with airlines and hotels. They are not able to give credit to even loyal customers. Hence, it depends on individual businesses to take a call.”

Nagpal adds, “Going forward, things might get stringent with more checks in place, but I don’t think we will witness a sea change in the way business is conducted.”

Sahni claims that while credit will be part of the system, the limit and the time span for the same will reduce now. “The number of days for credit will reduce, in fact it has already reduced. Today, we are telling people to give cash on delivery.”

Agreeing, Narula says, “Working without credit will be challenging. It’s not possible to work without any credit, as everybody needs some time to check bills and pay accordingly. Hence, a limited period of credit period as well as a credit limit will be there in the market, but it’s going to be much tighter than it was pre-COVID.”

B2B scenario
Jitesh Poojari, Vice President – Business, Akbar Online, asserts that credit would be reduced post the pandemic in the travel industry. The uncertainty in the cancellation policy has pushed all OTAs to reduce the credit exposure to travel agents. “LCCs that are purely cash-and-carry are dominating our domestic market with approximately 85 per cent market share. This is also one of the major reasons for reduction in credit facility.”

Echoing a similar thought, Singh says, “We do see an impact on the credit squeeze by a lot of B2B operators, especially to agents who have treated supplier partners unfairly during this pandemic. However, in the same breath, there have been shining examples of companies that have earned respect in the way they managed their outstanding payments and made sure their dues were paid.”

Sahni points out that while there are many types of B2B players in the market, agents would, in the future, work with those who have held their reputation and paid up in time, and the same will be the case when B2B agents would extend credit for agents. “Past reputation would be key,” he says.

No unity in industry
Sahni advises that unless the market becomes one, joins hands and decides on acredit policy, it is never going to stop. “Right now, I would have expected that credit would stop and people will be going online and paying by credit cards. However, agents are still offering credit and to get business, people will do such things. Those who wantto survive will do anything and everything to get business,” he adds.

Towards non-credit
While many are still giving credit, there are some who have made their own rules. Sriharan Balan, Deputy Managing Director, Madura Travel Service, reveals, “As a company, we had transformed to a cash-and-carry concept a while back and that saved us during the pandemic. I strongly advise all agents to either work on cash-and-carry or pre-payment for B2C. If every single agent follows this without any parity, then we can save our industry. Credit limit for B2B can be extended upto IATA limits and not more than that,” he suggests. For Poojari, investing in technology did the trick. “We believe that an agent requires the best technology and top-class service.” he says.

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