It’s happened to all of us at one point or another – you get a new client who has a decent vacation request, and a budget that makes sense, and you go to town, pulling out the stops and delivering a top-of-the-line experience with a commission at the end that will make your bank account weep with joy. And then, disaster strikes! Someone gets sick, or a job layoff occurs, or some other reason which makes the client say that dreaded phrase: “We need to cancel.”
For many of us, a client canceling means a loss of revenue for our practice, with no reimbursement for work already completed up to the cancellation, or work involved in processing the cancellation. If you charge a retainer, plan-to-go-fee, or some other type of up-front deposit, this is not as big of a concern, as you have funds to compensate for your time and work in the event of a cancellation.
If you don’t have an up-front fee of some kind, having a cancellation fee above and beyond that of the supplier is crucial to maintaining your sanity, as well as compensating you (at least partially) for billable hours and time spent with that client. So, what to charge? How to charge it? And how do you let the client know about these fees properly?
What to Charge?
This one is a matter of personal preference. Some charge a flat rate fee, others do a percentage of the trip cost. Others charge a fee that is equal to the commission earned on the cancelled booking, so they will receive their commission regardless. Whatever you decide to go with, it has to make sense for the typical time and effort you put into your work for your clients.
How to Charge It?
Many professionals accept check payments for fees and retainers, and this is certainly one way to go. For others, like myself, check payments are a rarity and we need to accept credit card payments. There are a variety of methods to doing so, including using the invoicing platform provided by PayPal, to obtaining your own merchant account. Personally, I use the Square app for mobile smartphones. It allows me to swipe or key in a credit card for payment, and the funds are sent to my bank account within 24 hours. Other companies like PayPal and Inuit have their own versions of this mobile payment system, and it has become an indispensable part of my business operations.
How Do I Inform the Client?
It’s imperative that you disclose any cancellation fees to your clients every time a price is discussed. I include my cancellation policy on trip invoices and trip quotes, and include it in some email missives if I think it’s necessary. You don’t want to beat your clients over the head with the information, but you also don’t want to leave a loophole where they can say, “You never told me that!”
I highly recommend consulting with an attorney about instituting a cancellation policy, as some localities may have legal requirements or obligations you should be aware of, and an attorney can help you draft the wording as well as indicate where you should disclose your information that is appropriate for your business. The attorney can also help you determine how your policy should be implemented, especially if you charge an up-front deposit or retainer for your services.
Charging a cancellation fee may be intimidating just like any other fee or retainer, but when you lose bookings through no fault of your own and you have no compensation left for your time, effort, and knowledge, that missing money adds up!
Steve Cousino, ACC, CTA, LS is a six-year industry veteran and owner of Exclusive Events At Sea and Journeys By Steve with specializations in group cruising, individual ocean & river cruising, and personalized experiences in Europe, especially the British Isles. He can be reached at steve@journeysbysteve.com.
6 thoughts on “Merits of Cancellation Fees”
The best part is when the client becomes indignent over the cancellation fee. I very simply ask them if they work for free and when they respond ‘no’ I respond by telling them that I’m sure they dont expect me to do so. Usually it is well taken because, as you mentioned, they have been told about it at the time of booking and it’s on their invoices as well.
In all reality it’s the supplier that should pay the commission no matter what. In most cases the supplier receives their full payment (if the cancellation is after the full payment is made and the booking is non-refundable), the client will claim the insurance policy, therefore, everybody gets paid, the supplier keeps the full amount including commission that was due to the travel agent. I say that there has to be a rule that the commission is paid as soon as the full payment is made and it’s recalled back if cancellation occurs. That’s the correct way.
Sorry, the commission is NOT recalled back after the cancellation.
I agree that the supplier should honor at least a large portion of the commission. We have done the work and the supplier has received the funds from the customer.
I agree, we should get a prorated commission from suppliers. But even if that happened, when they cancel and the only penalty is deposit, that commission still may not be sufficient, and our own cancellation “administrative fee” may be in order. And frankly if the client has insurance and is cancelling for a covered reason, you’re golden. 😉
I just realized why reading the article that I do not store client information. For those of you that also do not store info, have you had issues collecting your cancellation fee?