1. Good Accounting Practices Before Launching Your Travel Agency
A. What kind of legal entity is better?
Registered or incorporated? Schedule an appointment with a legal counsellor specialized in corporate law. A corporation status comes with some benefits to consider. Do not hesitate as well as referring to an accountant who can accompany you during all the steps.
B. Make Financial Forecasts
Generally speaking, new business owners often launch their new business without taking the time to make financial forecasts. These will help you to determine the necessary level of investment; at what stage you will have to hire additional staff or if there is a niche or a market segment that can be more profitable. This is a crucial step to think about for future sound decisions.
C. The Legal Context
Make customers travel who dream of total escape, resting for a while or looking for personal challenges is the most pleasant part of the travel agent’s job. The accounting can be the dark cloud in your day if you did not correctly anticipate everything that has to be done within your travel agency.
The Canadian legislation related to travel agents stipulates that:
The travel agent must keep books, registers and accounts related to his operations up to date and in which are indicated among other things:
• All the funds received by him in trust;
• All disbursements made by him from his trust account;
• The unused balance of the funds held by him in trust in the aggregate and separately for each customer.
The Quebec and the Canadian government state that you must keep adequate registers and books of accounts. In addition to this, in Quebec you need to have a review mission report for the renewal of your OPC travel license, the auditor in charge of preparing your financial statements will require that your accounting be accurate.
Rules related to the customer invoice:
For a travel agency, 95% of the accounting will be done through the invoicing process to customers. What are the key elements that are mandatory on the travel invoice according to the OPC regulation in Quebec?
• Passengers’ names
• Complete address
• Invoice number
• Date
• Description of the included services
• Amount collected for the consumer protection fund (FICAV)
• The statement that the funds collected for SICAV are credited in a Trust
• Cancellation conditions
• The travel agent’s full name
• Tax numbers with amounts
You can refer to the Appendix 3 of the travel manual made available by OPC.
In addition to making sure that all this information is present on the invoice, you must also properly mention the invoiced amounts, the payment mode and the amount that has been prepaid by the customer and to ensure that the information related to the vendors’ commissions, fees and payable are adequate.
Take this seriously!
In case of error, it will result in an issue when the suppliers’ commissions are to be paid, when the check is issued to the travel vendors, in the commission amount to be paid to the travel agent and in taxes to be paid to the government entity. Therefore, I stress the importance of having an effective billing methodology and efficiently correcting possible mistakes while training your staff in the invoicing department. It will allow you to significantly reduce the risk of errors in the accounting department.
2. Good Accounting Practices Once You Are Already In Business
A. Constant Customer Payment Follow-ups
Do follow ups at the beginning of every week and send reminders to your customers regarding the amounts due. Give a list to your travel agent or allow them to directly generate it from your back-office solution. If everybody takes good care of their files, you will have less unnecessary modifications to make.
Several booking engines such as Sirev enable you to transfer the whole file into certain accounting software. This synchronization feature will minimize the risk of errors drastically avoiding double data entry.
B. Travel Vendors Payment Management
Once the final payments have been made to the travel suppliers, it is necessary to ensure that the received amounts match with the expected amounts. Again, if the invoice has been initially issued correctly, it will be easy to detect possible errors on the vendors’ side. If there are no errors on the vendor’ side, the amount received will be exactly the same as the amount expected.
Watch out!
Any gap should quickly draw your attention to find out where the error is coming from. Is it an error that occurred when billing or a change in the account made by the travel vendor? Travel agencies tend to trust travel suppliers with commission payments. A big neglect because of a lack of time! It is not uncommon to realize that commissions in files with departures several months ago still have not been paid the travel vendor. Periodically, a list of commissions to be received by travel vendors should be generated to follow up as effectively as possible.
A travel agency owner must also take care of the business management; pay the administrative suppliers, the employees’ salaries, taxes to the government, the Consumer Protection Fund (if applicable depending on the country where you are located) and the commissions to the external travel agents. There are several helpful tips and recommendations to make the administrative tasks easier and less time consuming.
C. Administrative Recommendations
(a) Accounts Payable – Travel Vendors
When you receive a vendor’s invoice, track it immediately in your accounting system and make your payment as soon as you can. It can be advisable to post-date your check if you have some specific terms of payment arrangements with your supplier. In addition to that, have checks that can be printed directly from your accounting software. You will save a lot of time and avoid mistakes. You can also make online payments on the websites of many financial institutions.
In most countries, GST taxes as well as Consumer Protection Funds can be paid online. By using this service, you reduce the penalty risks related to late payment. Be aware that post services or mail delivery companies are not inerrable and that they may sometimes lose documents.
Unfortunately, government entities will charge you penalties and interests no matter the origin of the mistake.
(b) Commission Payments to Travel Agents
You have probably already experienced an external agent contacting you in an impromptu way to be paid for his commissions. It was not on your todays to do list and you feel a bit disorganized. As soon as you have a new travel agent within your organization, you have to clearly define how and when commissions will be paid. Generally speaking, it is suggested to pay the due commissions the 15th or the 20th of the month following the date of the commissions that were received for the departures of the previous month. By doing so, you will pay for the transactions whose vendors commissions have already been credited on your company’s bank account over the last weeks. The vendors’ commissions deposit in due time is therefore a very important step in order to be able to pay your travel agents’ commissions at the right time as well.
(c) Use a Corporate Credit Card
Many companies choose to use a corporate credit card on behalf of the travel agency to deal with their various payments whether they are administrative expenses, travel vendors’ payments and most of the time, the customer paid cash and the deadline is too short to send a check by mail. The credit card has to be considered as a bank account and a bank reconciliation has to be done on a regular basis. A minimum control over the people allowed to use it is preferable to avoid any possible fraud.
Pay special attention to the trust account!
The trust account must be kept up-to-date. And do not tolerate any banking fees in this account. Make sure that every amount of money to be withdrawn here matches the exact previous deposit amount. If not, you are considered to be violating the Travel Agent Regulations.
D. Benefits Related to Good Accounting Practices
(a) A Constant Overview of the Accounting Situation within your Travel Agency
Accounting perfectly completed every month will enable you to obtain up-to-date reports in order to access relevant information and to make sound decisions as soon as possible. An overview of your sales by travel vendors will allow you to possibly renegotiate your commission rate with some of them…an overview of your sales by agent will give you the opportunity to congratulate your best sales staff that have overachieves their sales objectives.
(b) Analyze your Results
You should give your organization the objective to close the accounting month within 5 to 10 days after the end of the month. Most customers whose reservations have been finalized at the end of the month have been invoiced and the bank reconciliation has been completed. If ever you received new information in your files from your closed month, you just need to re-open the month and update your files consequently and then re-close the month. Take this opportunity to consult your key reports: income statements, balance sheets, sales analysis, commissions to be received, customer account receivable, travel vendors to be paid. Do not hesitate to get the support of an external accountant if you do not understand all the info that you have on hand. An accounting expert will be more than happy to make it easier for you to understand.
(c) Facilitate your Financial Audit at the End of the Year
Your 12 business months are now over and closed. It is time to inform your accountant he can start dealing with your financial statements. In Quebec, you will also have to renew your OPC travel license. Your insurance company dealing with guarantees will need a copy of your financial statements. Your bank could also ask for them or any financial institutions that granted you a loan. If you took good care of your accounting operations throughout the year, you will be better able to respond to the various questions an accountant or an auditor could ask you if necessary.
As a conclusion, any new business owner will have to wear many hats within his organization. He works in his field of expertise but has also to deal with accounting, human resources, marketing etc. When starting a new business, you cannot count your work hours but you will have to surround yourself with internal or external collaborators who can help you achieve your goals. By following these good accounting practices and by providing your organization with the best tools and efficient systems of the industry, you will reduce your expenses and generate more revenue. On the contrary, not implementing the right systems and the good practices for travel agencies will bring about delays with your commission follow-ups, official documentation to be delivered to government authorities and you could end up with heavy penalty fees.
We wish you a lot of success with your new travel agency!