Payment methods – do not lose out!

Most of our efforts as accommodation owners are directed at attracting, then satisfying, our customers. The vital end result is the money they pay us – but many owners forget to think about payment methods as much as they do about other aspects of their operation. Don’t lose money by failing to plan how you take money!

Deposits

Most of us learn the hard way that we MUST charge a deposit. The first one we waive will be the first one that does not turn up. Nothing is more frustrating than a ‘no show’ when you have turned away other customers – and if you have no deposit, it is a total loss. The lesson is to always charge a deposit on booking.

Cheques

Cheques are now only of much use to small businesses (such as bed and breakfasts), so are rapidly disappearing, and hardly ever used by anyone under 30. In any case, they are no use for bookings from overseas – which of course you will want to encourage as they tend to be booked earlier and for longer periods than ‘domestic’ bookings; nor are they much use for late bookings (cheques need time to arrive by post, then clear), so you are taking a risk and may even lose business if you do not have some form of ‘real time’ payment system – in practice, this means an electronic system.

Credit Cards

In order to set up a credit card ‘merchant account’ from a bank or payment processing provider (such as Streamline), you will need to comply with their criteria and undergo an application process. Once approved, you will have to pay a set up fee for your account (usually around £150) and pay ongoing ‘management charges’ (of at least £20 per month or more), plus a percentage commission on each transaction thereafter (typically 2% to 3%, but this is widely variable). You may also have to pay equipment rental and other fees. These costs can be disproportionately high for a small bed and breakfast that only makes a handful of transactions a week by credit or debit card, for instance.

If you have or are considering an electronic booking system, ask the provider about payment systems, as they tend to have arrangements for their customers with a preferred provider.

Overseas payments

Your clients can pay you by direct bank transfer, but international transfers can be costly (the cost can potentially equal the amount sent if it is a booking deposit, for instance). Some bed & breakfasts ask for a deposit, then a (returnable) “bond”, then the final payment. If the “bond” is returned by bank transfer too, this means potential total bank charges of £60 to £80 pounds on one booking.

If you do agree bank transfers, do ensure that your customer agrees to pay all the bank charges, including the receiving bank charges. Ideally, agree one transfer for the total booking value. This may not be easy of course with early bookings, and the client may balk at the bank charges.

Online payments

An easy alternative is PayPal®, the global email payment system. PayPal is part of eBay and is used in over 55 countries. It allows you to accept payments by credit or debit card from anyone with an email address and internet connection. Costs are around 3.4% plus 20p per transaction for small volume users, with no other charges. This is much the cheapest option for the small accommodation provider.

PayPal can be set up very quickly and with no cost – you simply create an account for your business online and link your PayPal account to your bank account. You can then transfer any money you receive via PayPal to your standard bank account. You can also use PayPal to send ‘email invoices’ or to create a payment ‘button’ for your website, but it cannot be used for payments made in person at your premises.

An alternative online system to PayPal is Nochex.

If PayPal or Nochex are not right for you – perhaps because you have a level of card payment turnover that justifies a merchant account, or need to accept payments by card made in person (eg on arrival or departure) at your premises – then check if a trade association you are a member of has an advantageous commission rate and monthly fee agreement with a merchant account provider. Many do such as the Bed & Breakfast Association, or the Federation of Small Businesses. These may offer you a better deal than you would be able to obtain on your own based on your turnover.

Terms and conditions

Finally on payments, it is vital to put yourself on a strong footing in case of future disputes by making clear what your payment conditions are. Spell out in detail on your website and brochures your deposit level (for example: “£25 per room or 20% of reservation value, whichever is the higher”); spell out that the deposit is non-refundable (or specify the conditions for a refund); state when final payment is due (eg on arrival or on departure); state what your prices include (eg breakfast, taxes) and what they exclude (eg parking, drinks, etc.); and (very importantly) spell out a clear scale of cancellation charges – these will typically be based on different flat rates or percentages of the reservation value, depending on the number of days from arrival on which the cancellation is made.

Think these “rules” through very carefully – if they are clear and reasonable, you should be able to enforce them in practice; if they are unstated or vague, you will have no chance.

As an example, here are the cancellation terms used by a small 4-star B&B in Dorset:

Reservations cannot be guaranteed without pre-payment or receipt of a deposit of £25 per room or 20% (whichever is higher). Deposits are non-refundable. Cancellations will be charged as follows:

within 14 days of arrival: 25% of reservation value (or first night cost, whichever is the higher) within 48 hours of arrival: 50% of reservation value (or first night cost, whichever is the higher) within 24 hours of arrival: 100% of reservation value.

(The excess of the cancellation charge payable as above, over any deposit paid, is payable on cancellation.)

If you have a travel insurance policy, you may be able to reclaim these cancellation charges should your reason for cancellation fall within your insurer's allowed criteria.

Do think about the timescale and cancellation rates for your own business and decide on what is reasonable. If your cancellation fees are disputed, legally you can only recover your actual costs (rather than an arbitrary amount) due to breach of contract (eg a booking cancellation), so if a cancellation dispute went to court, you would have to show that you lost alternative bookings, and tried to re-let but were unable to.

David Weston is Chief Executive of the Bed & Breakfast Association ( www.bandbassociation.org ) and co-author of “How to Start & Run a B&B”.