CASH AND
CREDIT CONTROL
Any hotel business will be
handling cash and credit transactions that will involve some element of risk.
It is important that some effective measures of control be devised and
implemented in order that the risk is reduced or eliminated completely and the
hotel is able to operate as a profitable venture.
In general, control can be managed thus:
1.Organisation:
the organisation
charts devised
and circulated by the management give a clear picture to employees about the
various levels of operation in the organisation.
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They help
in knowing and understanding the reporting patterns and the responsibilities
of
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each
employee, whichever level they are placed at.
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2.
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Responsibilities:
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job descriptions also help as control measures as
they clearly inform the
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staff of
their responsibilities in a particular job designation. They clarify the
limits of their
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responsibilities
and the scope of their authority, the staff they report to or supervise, and
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ensuring
that there is no overlap of duties and the resulting confusion is avoided.
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3.
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Supervision:
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good supervision results in reduction in mistakes and avoidance of
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shortcuts
often taken by employees to reduce time and effort and which results in grave
and
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serious
mistakes that cost the hotel dearly.
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4.Security measures: physical security of the premises also helps in
avoiding losses to the hotel. Safety and security equipment, personnel and
procedures need to be carefully planned and implemented- safe deposit lockers,
key handling, use of cctvs, designing of the public spaces, etc.
5.Procedures: all procedures for handling cash and credit situations should be
clear cut and communicated to the relevant levels of employees. Comprehension,
training and follow up should be the main consideration.
CREDIT CONTROL
A guest room is the most perishable article sold in any type of
business. The income from today’s vacant room is lost forever. Often a hotel
must accept business, whether for a guestroom or a banquet even though it may
involve a credit risk. Credit limits depend on the operation, the level of
charges and the type of guest.
The increased use of credit, the
longer time taken by guests to pay their bills and the cash requirements of the
operation also contribute to the greater stringency of the credit procedures
now in effect in most hotels.
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WHY IS
CREDIT CONTROL NECESSARY?
Hotels need to have a healthy cash flow in order to
survive and succeed and they try to achieve this by exercising control over the
credit given to guests. To achieve a balance between the needs and convenience
of the hotel guest (credit facilities) and the needs of the hotel (cash flow),
every organisation will need to have an effective credit policy in place.
FUNCTIONS OF THE CREDIT
DEPARTMENT
Credit control refers to the
various measures taken by a hotel to ensure that guests settle their accounts
in full at an agreed time. Controlling credit is the responsibility of the
credit department. In larger hotels, the credit department consists of a credit
manager, a secretary and a few assistants. They are members of the accounting
department and the credit manager reports directly to the Controller.
The credit dept. has two primary
functions:
oTo investigate the financial standing of and
approve limits of credit for each prospective client; and
oTo try to collect the amount due if the customer fails to live up
to the terms established for payment of the account.
Individual credit limits are impossible
to establish, so an attempt must be made to control credit while charges are
accumulating, with no idea as to what the final total will be. Bad debts can be
prevented or kept within reasonable limits, only while the guest is still in
the hotel; after check out, it is too late.
CREDIT POLICY OF A HOTEL
Elements of a credit policy:
§A hotel
chain’s general credit policy rules may be interpreted, changed, or modified by
the management to fit their own particular hotel.
§A credit
policy must take
into account the marketing objectives of the organisation. A liberal policy
tends to expand the market, but it entails a certain amount of risk. The
tighter the policy, the more restricted the market. A new hotel has a greater
need to solicit and attract business than does a well-established hotel, which
can depend on its reputation to attract new guests and repeat business from
former guests.
§In-house
guests are those
who occupy sleeping rooms; non-guests are those who do not occupy rooms but who use one
or more of the hotel’s other facilities-banquet rooms, restaurants, bars, etc.
§Credit
privileges extended
to in-house guests are for room charges, food, beverages, laundry, telephone
services, entertainment, and cash.
§Since hotels
normally allow guests to charge their hotel expenses to their room account,
they have to make certain that the guests are able to pay their bills in full
before they extend credit.
§The credit
limit or house limit refers to
the maximum level to which a guest’s bill can amount before some form of
settlement is required. These limits vary according to the guest’s reservation
status and method of payment.
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Policy
for establishing in-house credit:
To minimise bad debts it is
important to establish clear guidelines for operation of in-house credit
provisions. These guidelines should cover:
a.Who is
going to be provided with credit?
b.What
references or security is required before extending credit facilities?
c.What are the credit limits for individual debtors
and within what time span will they be allowed to pay?
d.What
processes are going to be undertaken in the event of default?
e.Establishment of a credit sales journal, and
debtors’ contract accounts should be maintained up-to-date and regularly reconciled by preparing
and aged listing for further review and action.
In general,
hotels tend to allow
credit to three types of guests:
ØThose who
have guaranteed bookings
ØThose whose accounts will be settled by their
companies
ØThose who
will settle their accounts by credit or charge cards.
ØGuests with
guaranteed bookings: Most
guests give credit to guests with guaranteed bookings on credit cards or
advance deposits. On the other hand, walk-in guests and guests with
non-guaranteed bookings are usually not given any credit if they settle their
bills by cash or cheque. These guests are usually required to prepay their room
rate, together with a deposit for incidental expenses, at check in.
ØSettlement
by corporate accounts: When a
company wishes to have credit facilities at a particular hotel, the hotel will
have to check to ensure that the company is solvent and able to pay their
bills. If the company’s bank gives a favourable reference, it is approved to
receive services on credit. The list of approved companies is circulated to the
reservations, reception
and sales office so that all
concerned departments are aware which companies are entitled to credits at the
hotel and the different credit limits applicable to them.
Ø Accounts settled by credit or charge card: The types of credit cards or
charge cards accepted by the hotel vary. Reasons for this may be the popularity
or otherwise of the card, the fee the hotel pays on accepting a particular
charge or credit card and the time period taken by the company to settle the
account. Signs may be displayed at the front desk showing which credit card or
charge cards are accepted by the hotel. Also, the different companies may agree
for different floor limits and the staff must be aware of these.
OBJECTIVES OF CREDIT CONTROL
MEASURES
The main objectives are:
ØTo prevent
walkouts or skippers. This
includes guests who forget to check out or think that the billing will be done
to their credit card accounts or their company.
ØTo prevent
late settlement of accounts. Accounts that have not been paid within a certain time period must be
followed up.
ØTo avoid
guests dissatisfaction. Guests feel embarrassed and annoyed if they discover, at check out,
that their credit card is not being accepted by the hotel, refusal by the hotel
to accept certain foreign currency or their account being over the hotel’s
house limit or the floor limit authorized by the credit card company.
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Common
causes for these
problems may include:
ØUnclear
instructions to the
guest at check-in (not informing the guest which credit card or foreign
currency is or is not acceptable)
ØLack of
communication between
departments (the credit manager not notifying the cashier when a guest’s
account is over the hotel’s credit limit)
ØBreakdown in front office procedures (the
front desk or reservations clerk not checking the blacklist for previous
skippers)
These can be solved by:
ØGive the
guest clear instructions at check-in regarding account settlement.
ØNotify the guest when their account has reached the hotel’s credit
limit.
ØProvide a
list of previous skips to all relevant departments.
ØEnsure good coordination and communication between all departments in
matters relating to guest charges.
ØEnsure that
guests with company accounts have been notified that the account has to be verified
and
signed before check out.
CREDIT CONTROL MEASURES DURING
THE STAGES OF THE GUEST CYCLE
I. CREDIT CONTROL MEASURES AT
RESERVATIONS
ØCheck the
type of reservation--------
guaranteed bookings are allowed credit; non-guaranteed have restricted credit.
ØInform
guests with non-guaranteed
bookings that they are required to pre-pay at check in.
ØEnsure that
correct room rate is quoted----- to prevent any revenue loss to the hotel in quoting a lower rate
and to prevent later disputes.
ØRequest
prepayments for group bookings or special packages and inform guests of
cancellation terms and charges----to avoid loss of revenue in the event of
cancellation and to guarantee group bookings.
ØCheck the
method of settlement--------to
avoid misunderstandings and ensure the guests will pay cancellation charges.
ØCheck the
corporate account details for those whose company settles their account----only
companies on the approved companies list are to be allowed credit.
II. CREDIT CONTROL MEASURES AT CHECK-IN
ØCheck reservation
status: collect
pre-payments from walk-ins and non-guaranteed bookings
ØCheck type
of accounts:
1.Travel agent voucher- ask for voucher and check what
charges are covered. Check with guest for method of settlement of incidental
charges.
2.Tour groups - check with tour leader about the billing
arrangements (say, master account to the travel agent and incidentals to the
tour members)
3.Corporate accounts - check whether the full account
is to be settled by the company. If not, agree with the guest on the methods of
settlement for incidentals. Inform the guest that he needs to sign the bill at
departure.
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ØCheck methods of settlements:
1.For cash settlement, record the room rate on the
registration card and key card, and remind the guest of the room rates; inform
the guest of house policy on house limits.
2.For charge or credit card settlement, check that
the card is accepted by the hotel. Take an imprint of the card to check the
validity of the card; to seek authorization, to guide against walkouts.
II.CREDIT
CONTROL MEASURES DURING OCCUPANCY
Most
transactions between a guest and a hotel take place during a guest’s occupancy.
So, during this phase of a guest’s stay the hotel needs to monitor the credit
given to guests closely.
üBills with high balances are monitored closely.
üThe cashier will monitor all the bill totals against
the
hotel’s set credit limit.
üEach day a high
balance report will be
produced which lists all the accounts whose totals are near to or in excess of
the limit.
üThe front
office cashier, night auditor or the credit manager is usually responsible for
handling accounts with high balances.
üThe guests
will be asked to settle their account to date, and a fresh
account will be
started for the rest of the stay.
üThe credit
manager will send the bill together with an accompanying letter to the guest room, asking the
guest to settle the account with the cashier.
üIf guests fail
to do the needful, their room will be double-locked and now, the guests will have to
contact the manager before they can access their room.
CREDIT
CONTROL MEASURES BY OTHER
POS during occupancy
When a guest wishes to charge his
purchase of goods or services to his room number at any POS the staff there
must check his credit status carefully. They must check that:
ØThe guest is
a resident and or
has an account at the hotel
ØThe guest is
allowed to charge services to their account
ØA walk-in
may not
be allowed to charge services to their account and so will have to settle the
incidentals by cash or credit at the sales outlet.
ØIf the guest
is part of a tour, their package may allow a meal in the hotel but only up to a
certain value. Any excess on the bill must be settled at the POS.
ØOften the
front office will issue these group guests with vouchers, which the guest will hand to the
restaurant captain upon entering the restaurant.
Advantages of a PMS in controlling credit:
·Computers
can automatically monitor bill totals and produce high balance
reports, thereby
notifying the cashier when to seek higher
approval on credit cards.
·The computer can also be programmed to prevent charges from being added from
other departments when the guest is not allowed credit.
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IV. CREDIT CONTROL MEASURES AT CHECKOUT
This is the last time that the
guest will be physically accessible to the hotel and great care should be taken
during the checkout time. All procedures should be carefully followed up
according to the profile or status of the guest. The key to guest satisfaction
and hotel profitability is consistency. Irrespective of the guest in front, the front
office must follow all the required procedures (SOPs) in detail (for every type and
method of settlement allowed by the hotel-cash payments, credit card
settlements, etc.) and in the manner informed during training. Hurried
shortcuts to save time or please the guest usually result in losses. Obviously,
the steps taken at registration will help in reducing mistakes and misunderstandings
now.
a.Cash
payments: confirm
the currency and amount taken from the guest and ensure accuracy of conversion
of foreign currency. Always hand over the required receipt and take guest
signatures on the guest bill and encashment certificates.
b.Credit
card payment: ensure
all the precautions that need to be taken- signature matching, expiry dates,
authorisation, etc. give a copy of the signed voucher to guest and retain one
copy for the hotel.
c.Travel
agent vouchers: ensure
that the guest pays for his incidental folio in the manner confirmed at
registration. He need not sign the bill as that is to be paid by the travel
agent.
d.Direct
billing/corporate account: ensure that the guest settles the incidental folio in the manner
confirmed at registration. Ensure his signature on the bill that is required by
his company.
Always confirm with the guest
about any recent charges he may have incurred that may not have been posted
to his folio. This avoids the occurrence of late charges that will need to be followed up later by Accounts
and possible losses later on.
Also, the return of the room key
and any safe deposit or other facilities he may have availed during his stay
must be confirmed.
V.CREDIT
CONTROL MEASURES AFTER GUEST DEPARTURE
üAfter the
guest checks out, all guest accounts that are not settled by cash will be
transferred to the city ledger held by the accounts department.
üAt the end
of each month, the accounts department will send statements of these accounts to the
companies for settlement and payment is usually expected within 30 days (account
aging).
üHowever,
some companies may be late in settling their accounts in which case follow-up measures will be needed
to be taken to speed up the payment.
üThe
following could be done:
1.After having failed to receive payment within 30
days, telephone the company as a reminder.
2.After 45
days, write officially to the company, requesting immediate payment.
3.After 60 days send a strongly worded letter.
Possibly threaten legal action.
4.If nothing has been received after 90 days,
proceed with legal action through the company’s solicitor. The bill may have to
be written off as a bad debt.
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Ideally,
each guest’s bill should be under constant surveillance by the credit dept.
However, this is not always practicable and other departments are required to
be aware of their role in helping in the control of losses to the hotel’s
revenue.
Some of the ways in which other
departments can help the credit department succeed in its job of credit
monitoring are given here:
Interdepartmental cooperation
required for effective credit control in the hotel:
üThe bellboy who rooms the guests should note
on every rooming slip the number and condition of the bags such as poor or
light luggage. If such comment appears, a member of the credit dept. can look
into the matter more deeply.
üThe room-service
cashiers should
immediately alert the credit dept. of any unusually large orders of food and
beverages. The room service waiter should report unusual
activity in a
room- a large number of people, a party, many bottles of liquor not ordered
from the hotel, etc. as well as unusually large tips. Skippers usually prefer
room service to restaurants, order the finest food and beverages available and are generous
tippers!
üThe maid indicates the status of
the room in her
morning report, but should be trained to recognise and report any conditions
that might indicate that the guest has departed without notice.
A favourite trick of skippers is
to remove all personal toilet articles except perhaps a half- empty can of
shaving cream or hair spray and to leave an old trouser or dress or an old bag
in the room.
The maids report will not stop
the skipper, but can help reduce the accumulation of additional charges and
even the loss of revenue if the room could be re-rented that day.
üRestaurant,
nightclub and bar cashiers should also alert credit personnel of any unusually large tips
authorised by guests on their checks.
So, preventing skippers or
walk-outs can be achieved thus:
A skipper costs the hotel money not only in
room revenue but also in actual food and drink costs. Therefore, front office
staff should take great care when dealing with newly arrived guests. It may be
possible for staff to identify potential skippers by paying closer attention to
the behaviour of guests.
1.On arrival---- the bell staff should check the number of bags
and assess their weight. People intending to walk out often have very little
luggage or carry empty suitcases that they leave behind.
2.During the stay----- extravagant purchasing
patterns can be a feature of skippers so the cashier must monitor the guest’s
account carefully. Skippers are likely to order expensive meals and eat and
drink from room service. Housekeeping can keep an eye open for rooms with
little or no luggage and warn the front office to take timely steps.
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3.On the day of departure---- the bell staff may contact a
departing guest to request the time to collect the luggage and will keep the
bags in store until the guest has paid their account. Some hotels have a system
of luggage passes. When the guest has checked out with the cashier they are
issued a receipt or luggage pass. The guest will then show the receipt to the
porter who will release the luggage.
4.The most important aid to the credit manager is
the actual activity on a guest account. The front desk staff and the night auditors are continually looking at guest
folios. They are in the best positions to spot unusual activity, both in the
number of charges and the amount involved.
5.If guests,
immediately after arrival, start ordering from room service, incur charges in
the
restaurant
or bars, send out clothes to the valet or laundry, they are suspect and someone
in credit should be advised to review their bill. Of all charges, long distance
calls are the only ones which may be used to trace a former guest when the
hotel does not have a valid address.
6.The night auditors should be instructed to monitor
the high balance report- a list of guest balances
exceeding pre-determined limits- and ensure that copies go to the credit
manager, front office manager and controller.
Credit-department billing
procedures:
üMost
policies require the credit manager or his staff to review each day every
guest bill especially
those listed for special attention, or for those accounts that exceed a
specified amount or even those that have no charges other than room and tax
(the guest may have checked out but for some reason the bill was not settled
and the room continues to show occupancy even when, in fact, it is unoccupied).
üThe policy
should also specify the number of days the guest can remain as a resident before receiving
a bill for all charges to date. Today, most guests are billed at end of each seven-day
period (guest weekly
bill).
üThe night
auditor should bring the total balance forward to a new bill, and forward all
copies, except the guest’s, to Accounts.
üThe guest
copy is left for the credit manger who should review the account, and if it is
a personal charge (bill paid by the guest himself), see that it is placed in
the guest’s box, and be responsible for following through for payment.
üIf the account
is to be charged to a company, the credit manager should determine the
requirements for billing, and if they are in order, give the bill to the city
ledger clerk with proper mailing instructions.
Group and convention billing:
üEvery hotel,
according to its needs, should establish a credit policy for billing a
company or corporation hosting banquet functions, etc.
üSales people
make the contracts, sell and supervise the functions, and are usually the only
people knowing details of the billing instructions.
üTherefore,
management should require that all billing instructions, written or verbal, be
immediately turned over to the Controller, who then issues the proper instructions to his
staff. In fact, because the sales person may misunderstand the billing
instructions, it is suggested that the Controller meet with the group’s representative
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to review
the billing procedure personally, especially in the case of large companies and
groups.
üSince group
billing- the master bill as well as the individual member charges (incidental
folio)- must be closely monitored and frequently reviewed, the billing
instructions should be updated daily, if necessary, while the guests are in
residence, rather
than after the function is over or the group has checked out.
As can be seen from the above
details, in a hotel, credit control should be made every one’s business. Only then, can the hotel be
assured of a profitable business and the assurance of a healthy cash movement
for its operations.
CASH CONTROL
Many transactions in the hotel,
both at the front desk and the other points-of-sale involve handling cash. This
is a major function of the cashier and great care needs to be taken by
management in ensuring that the cash is accurately and safely handled and
deposited for safekeeping. The following measures may be used by the management
to control cash on the premises:
1.Training
all
cashiers in the correct methods of cash handling.
2.Implementation
of proper
cash handling procedures.
3.Use of cash
vouchers to
support cash payments received.
4.Use of paid
out vouchers for
payments made on behalf of the guests.
5.The use of correct procedures and
formats for handling foreign currency.
6.The use of a cash bank assigned to a cashier so he can
handle various transactions that occur in a shift and its accountability lies
with him alone.
7.The use of cash drawer that contains separate space for
all denominations of currency handled, usually with clips to hold the notes in
place. An orderly drawer avoids confusion in handling various denominations
when dealing with the guest.
8.At shift end, the cashier returns the cash bank
and places the balance of cash, cheques and other forms of payment in a cash
deposit envelope, itemizing its contents, in the hotel safe for depositing in the bank (cash drop
with cashiers report).
9.The cashier’s report and front office cash
sheet are daily
cash control reports that list each receipt or disbursement of cash and the
cashier’s activity of cash and credit cards and machine totals by end of the
cashier’s shift.
üThe opening
balance of the cash received on the second shift is the closing balance for the
first shift.
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üAt the end of the second shift, the front desk
cashier takes a closing reading to determine the amount of cash received.
üThis is the
amount of money that the cashier is responsible for depositing. Each shift must
fill out the cashier’s report. This report is used with a mechanical posting
machine.
10.Besides the above, alertness of the cashier when handling transactions and
guests is very important. Noting and interpreting the body language of the
guest in front can also help identify situations where greater care and check
is needed, thus avoiding losses.
11.Careful screening of employees recruited for the cash
or account handling activities or jobs would also enable the management in
controlling losses due to careless or deliberate losses.
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