Update: IATA has made a change to its financial criteria, so the below information is now out-of-date. You can find all the updated details in our latest post.
IATA has confirmed that agents’ financial accounts must meet new financial criteria for their financial years ending from 1 January 2023 onwards. The financial ratios are similar to what was in place before the temporary Covid criteria, but there are a few key differences.
- Agents’ accounts will now be evaluated based on four financial ratios, down from five previously.
- The operating profit test has been reintroduced, but agents no longer need to meet a net profit test.
- The “elevated” quick and cash cover ratios that were introduced as temporary measures during the Covid period have now been set as the base requirement.
- Accounts must pass all four tests to pass the financial assessment. If any of the tests are failed, financial security is likely to be required.
The financial ratios are:
| i. Positive net equity | Ratio must be positive/ greater than 0 |
| ii. Operating profit | Ratio must be positive/ greater than 0 |
| iii. Quick ratio | Cash + cash equivalents + trade debtors (excluding related parties) Trade creditors |
| iv. Cash cover ratio | Cash + cash equivalents + remaining overdraft/RCF BSP Outstanding at the year-end |
The quick and cash cover ratios are assessed against the following scorecard:
| If the ratio is | Pass or fail? | Settlement frequency and security requirement |
| >1.1 | Pass. | Agent can settle BSP twice per month. |
| 0.85 – 1.1 | Pass, but… | … agent must settle BSP every 10 days or provide security to settle less frequently. |
| 0.6 – 0.85 | Pass, but… | … agent must settle BSP 4 times per month or provide security to settle less frequently. |
| <0.6 | Fail. | Agent must provide security. |
Things to think about
IATA will assess the financial ratios based on information provided in your financial accounts. You may need to discuss enhanced disclosures with your accountants/auditors.
Your financial accounts should:
- contain all necessary figures to complete the financial tests
- show the BSP outstanding at the year-end (though your accountant can provide this as a separate written confirmation to IATA)
- disclose any remaining unused or undrawn overdraft or revolving credit facility (if you wish to rely on it when calculating cash cover)
- disclose the nature of debtors, split between trade debtors, related parties etc.
>> Download this information in handy PDF <<
If you have any questions about how the new IATA financial criteria could affect your business, contact our team for assistance.
