How hotels can solve payment challenges using virtual cards

Hotels and their travel agency partners can experience significant friction and costs when using invoice driven payments in intermediated distribution models. In fact, WEX’s latest proprietary research found that hotels specifically incur costs amounting to around 7% of the value of a $500 invoice from process complexity, payment delays, labour costs, invoice mistakes, and dispute management. Many of these costs are due to the friction that is inherent to an invoice driven process.

In our latest “Virtues of VANs for Hotels” report, we’ve outlined the following top pain points that hotels are experiencing as a result of payment complexity when using invoices:

1. Full invoice-to-pay cycle can take a long time, increasing costs and risks: It typically takes more than 30 days after a guest checks out to receive payment when hotels rely on invoicing travel agencies. Even if hotels do get paid within 30 days, this delay costs them around USD3.70 on an invoice of USD500, plus an additional USD6.25 in invoice production and reconciliation efforts.
2. Invoicing carries with it the risk of bad debts: Hotels that invoice travel agents after a guest has departed are extending trade credit to travel agencies, which can result in a bad debt rate of between 0.5% to 3%. Credit management, bank guarantees, and floating deposits offer ways of mitigating this risk but can be problematic in their own right.
3. Invoice mistakes can lead to missed revenue or costly disputes: Hotels that rely on invoicing for payment run the risk of producing invoices for amounts that are too low or in some instances, end up not producing an invoice at all, meaning that potential revenue can remain uncollected. Additionally, invoices may also be produced for amounts that exceed agreed rates, leading to long and costly disputes.

These are just some of the key invoicing pain points that are outlined in our report. However, hotels can reduce or eliminate them by moving to WEX Virtual Account Numbers (VANs). As well as offering simpler, faster processes and quicker payment cycles, WEX VANs can also help hotels significantly reduce the likelihood of fraud and chargebacks.

Additionally, Online Travel Agencies (OTAs) are usually best placed to accept the preferred payment methods of end consumers, especially where those payment methods are not accepted at the hotels where they wish to stay. OTAs can then make the payment to the hotels with an WEX VAN, which can be accepted anywhere that a Mastercard is accepted online. This helps improve traveller experience, increase hotel occupancy, and saves costs for hotels that may otherwise need to develop their own payment acceptance capabilities. A win-win for travel agencies and hotels.

Learn more about how WEX travel payment solutions can be tailored to your business, so you can accelerate and streamline operations while creating lasting growth and success for your organization.