🎵 What a difference a day makes 🎵
When Queen-Of-The-Blues, Dinah Washington sang her 1959 classic, she may not have been thinking about IATA ticket remittance dates.
But she certainly hit the nail on the head.
IATA’s recent change to its payment collection terms, which brings forward the payment date by 24 little hours has left many an IATA agent singing the blues. And watching their cash flow slide into the red.
Around a third of IATA agents pay for the flight tickets they issue every two weeks. Historically, in the UK, flight tickets issued between the 1st and the 15th of the month would be paid for on the 1st day of the following month.
However, from January 2023, IATA has decided to bring forward the collection date by a day so that cash will be collected on the last day of the same month. This will align the UK collection dates with other IATA territories around the world.
Now, 1 day might not seem a lot, but it could have profound cash flow consequences for many travel companies that have important financial tests they must meet.
Here are three examples:
Impact on CAA liquidity ratio
Take the CAA’s liquidity ratio which many ATOL holders must meet as a condition of holding their licence. The liquidity ratio is measured on the last day of each calendar month by dividing an ATOL holder’s free cash by the amount of client money they have collected.
If cash for flight tickets is collected before the month-end many operators could breach their liquidity test. This could lead to a range of possible penalties from a need to recapitalise, a demand to provide security, or even revocation of their ATOL altogether.
Impact on bank covenants
A similar fate could befall any IATA agents with bank loans. A lower month-end cash position could easily result in a breach of a financial covenant putting the operator in default of their borrowing agreement and risking the bank recalling their loan.
Impact on IATA annual financial assessment
IATA agents’ financial accounts must satisfy a range of financial tests in order to pass the financial assessment. One of the tests, the Quick Ratio measures the ratio of cash, cash equivalents and trade debtors to the total value of trade creditors. The earlier ticket payment will reduce an agent’s year-end cash balance, and depending on their accounting policy, it may not reduce the trade creditor balance. Failing the Quick Ratio may result in a demand for security, increased payment frequency or reduced Remittance Holding Capacity. This would mean fewer tickets could be issued on credit terms, thereby exacerbating the cash flow pressure.
All in all, shifting this payment date to the same calendar month, means travel companies are suffering a big dent in working capital.
You can check your remittance dates by logging into your IATA portal account and finding your BSP remittance calendar.
IATA has also confirmed agents’ financial accounts must meet new financial criteria for financial years ending from 1 January 2023 onwards. Find out more in our IATA UK – new financial criteria post.
If you are concerned and you’d like to understand how these changes will impact your business, please contact our friendly regulatory team.
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