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International Air Transport Association (IATA)’s new bill payment cycle, which reduces credit period of agents from 15 days to seven, will come into effect from next week. While travel agents’ associations fear the move would hurt them and could lead to defaults and closures, it is seen as a positive for airlines, as it improves their cash flow. It will benefit airlines which are under pressure from vendors and creditors to pay dues on time.
The weekly payment system was planned to start from last June but the implementation was deferred after protests from agents. Agents don’t immediately remit collection from ticket sales to airlines and make four payments in 30 days. Low-cost airlines in India are not billing settlement plan (BSP) members.
“Most agents give credits to corporate clients and have large receivables. The seven-day payment cycle will impact agents,” said Pradip Lulla, general secretary of Travel Agents Federation of India.
“We are discussing the issue with airlines and hope it is postponed. We are against the move. The airlines are cutting their marketing arms. The seven-day cycle will lead to a consolidation amongst travel agents and will increase the risk for airlines,” said Iqbal Mulla, president of Travel Agents Association of India (TAAI).
Last month, a travel agent in Mumbai defaulted Rs 25 crore to airlines. Agents fear that there could be more such defaults. Another problem is that insurance companies are now more stringent in approving insurance guarantees to cover the risk of trade default.
"Moving to weekly settlement plan will benefit both airlines and agents. Airlines will receive payments in time, while agents will have a reduced financial burden as a result of a lower financial guarantee requirement due to more frequent remittances.With the change in the credit period, travel agents should also review their business processes so as to ensure that their cash flow is sufficient to cover the payments,” said IATA spokesperson Albert Tjoeng.
“The default insurance coverage is a commercial matter between travel agents and insurance providers. We understand that a vast majority of the accredited travel agents in India were able to obtain default insurance coverage during a recent renewal exercise. Nonetheless, even if an agent is unable to obtain default insurance coverage, they still have the alternative option of providing a bank guarantee,” he added.
