The importance of Cash for hotels during this crisis

Or for that matter any crisis. It is said that in any business, cash is king.

The importance of cash for hotels is the difference between whether we will survive or perish

Never before has our industry ever faced such a situation where we do not know what is going to be the impact of this pandemic.

Various reports estimate that the hospitality industry will be the most hard hit with loss of business and slow revival.

We all know that.

Given the scenario, we need to conserve cash.

For properties that have debt service, and do not have cash buffer, the chances of the business failing will be ever greater.

So what can we do to conserve cash?

Related content: All articles on saving cost

Accounts Receivable

You, your sales team, your finance team infact everyone in the hotel should be calling up clients to collect the outstanding payment.

In a typical business scenario, I am certain that hotels have between 15 days to 50 days of revenue as outstanding.

Get on the phone now and collect them.

If required, give a cash discount to collect the money immediately.

Bill to Company/ TA

Try and stop this with immediate effect. I know it may not be possible, but as an industry, look at the airline industry.

90% of their business is collected in advance.

Even corporate who have BTC facility with us will not get that with airlines.

Avoiding BTC may feel like an impossible task sometimes. Too often our relationships with our clients will come into question. However this is the time to ask our clients to help support us as an industry.

If you have to give a BTC discuss this internally with your team and give only to essential accounts.

Extend Account Payable days

Yes your business depends on vendors who may be in bigger trouble than you.

However identify AMC vendors and services that are not critical and send them a letter explaining the delay that may occur

Ask them for atleast a 15 day extension of credit with a guarantee of payment.

Some of these vendors may be registered under the MSME act and you may not be able to delay their payment. So take care of these instances so that you abide with the law.

Negotiate a line of credit with the bank

This is possible to tide over short term cash requirements, however use this with caution.

You may have to repay with interest and with the business scenario being bleak, you may not be able to repay the amount.

In Conclusion

While this post is a little late, I believe it is better to be late than never.

They say the best time to start was yesterday, but the next best time is today.

To conserve cash you can

  • Collect the outstanding amount from your clients
  • Avoid Bill to company
  • Delay payment to vendors
  • Establish a line of credit with bank for short term cash requirement.

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