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Chapter 13
Money Matters
| Term | Definition |
|---|---|
| Expenses | the cost of goods and services used in the process of earning revenue |
| Fixed Expenses | costs that remain unchanged during a specific period despite changes in the volume of business (e.g. rent, insurance, salaries) |
| Variable Expenses | costs that increase and decrease directly and proportionately with changes in business volume (e.g.commissions, corporate dividends) |
| Semivariable Expenses or Mixed Expenses | costs that change in response to a change in business volume, but they change by less than a proportional amount - part of the cost is fixed for a certain time and another part changes with volume (e.g. electricity, telephone, advertising) |
| Bookkeepers | record daily transactions that create revenue and expenses |
| Accountants | analyze daily transactions |
| Income Statement | summarizes revenues earned and expenses incurred for a particular period: how much revenue/expense and where did they go; does income minus expenses yield net loss or net gain for that period? |
| Balance Sheet | based on info in income statement, a balance sheet shows the financial position of a business at a particular time. It shows assets, liabilities and equity. |
| Assets | usable resources such as cash, money owed to an agency by clients, office supplies owned by a company |
| Liabilities | claims that others have against the company (money owed to bank, salaries for days already worked, payroll taxes) |
| Equity | the excess of assets over liabilities (owners or stockholders, depending on how company is owned). |
| Change in assets | A change in assets necessitates an equal change in the amount of liabilities plus equity. Sum of assets = sum of liabilities + equity. |
| What information can you learn from balance sheet? | Does company have enough money on hand to pay bills and meet unexpected needs for cash; is company using assets efficiently; how profitable is the company? |
| Cash flow | pattern of income and expenditures that determine the availability of cash |
| Statement of cash flows | report that shows how much cash the company generated over a period of time and where it went. Reveals the company's ability to pay its short-term obligations when they come due and provides data necessary to anticipate cash flow needs. |
| How do suppliers get paid if client working with agent? | Directly from client, from credit card company, check from travel agent or through ARC |
| How do travel agencies get commission from suppliers? | Through ARC, by deducting commission before sending to suppliers or by checks from suppliers |
| ARC | Airlines Reporting Corporation, an organization owned by the major airlines that regulates the sale of airline tickets by appointing who may sell them. Acts as a centralized system for processing ticket sales. |
| Accountable Documents | Standardized forms issued by ARC that serve as tickets. Includes airline tickets, miscellaneous charge orders, prepaid ticket advice, and tour order. Handle as cash. |
| Area Bank Settlement Plan | system set up by ARC through which participating suppliers receive payments for sales by travel agencies. Each travel agency pays the ARC suppliers weekly by filing a mandatory report. |
| ARC Report | Mandatory weekly report travel agents file which is an accounting of sales. Also called air report or sales report. Prepared by CAS. Itemizes all sales to ARC suppliers, including adjustments for commissions and credit/debit memos. |
| Certified ARC Specialist | ARC-certified specialist who can file ARC reports. Every agency which has an ARC appointment must have a CAS. Recertification required every 4 years. |
| Procedures of Area Bank Settlement Plan - Part 1 | Listed in the ARC Industry Agent's Handbook: Customers pay travel agency for ticket with cash, check or credit card. Agency deposits payment into own bank account and within 2 days of the end of each business week, the agency submits an ARC Report (mail |
| Interactive Agent Reporting (IAR) | Electronic reporting of weekly ARC Reports using Interactive Plus software (free download). Daily ticket sales are transmitted nightly from reservation system to IAR, which prepares the weekly summary daily for daily review and reconciliation. |
| Credit Memo/Debit Memo | Documents sent by a supplier when a travel agency has reported the incorrect amounts for commissions or fares. |
| Area bank | ARC processing center which acts like a collection point for ARC reports and disburses money to the appropriate suppliers. Located in Phoenix, El Paso and Louisville. The bank calculates the total amount due the suppliers and presents a demand for that |
| Procedures of Area Bank Settlement Plan - Part 2 | Once area bank submits a draft to the travel agency's bank, the amount withdrawn from the bank equals cash sales minus commissions from both cash and credit card sales. The commission remains in the travel agency's bank account. Area bank then disburses |
| Base Fare | Fare minus all taxes. This is the amount upon which commissions are based. |
| Procedures of Area Bank Settlement Plan - Part 3 | Whether client pays, agency pays for ticket within a week of issuing it. To protect against errors by area bank, travel agency notifies area bank each week of the maximum amount that can be withdrawn from account. |
| Agency Sales Summary | Area Bank report made available to agency securely on Internet that summarizes all transactions. Agency reconciles its weekly ARC report with the Agency Sales Summary. Available within 3 days of ARC Report submission by agency. |
| Check payments for net amount | Non-ARC suppliers are paid by travel agency checks for the net amount (agencies deduct their commissions before sending checks to suppliers. No commission is taken from deposit payment. No commission on taxes if calculated separately. |
| Escrow account | holds funds or other property that is held by a third party until specified conditions are met for its release |
| Check payments by client directly to non-ARC supplier | Supplier will send agency check for commission. |
| Overrides | Bonus commissions paid by suppliers to agencies which meet various sales goals or move clients to the suppliers products. Usually part of a preferred supplier relationship with agency. Well run agency can earn 3% of gross volume on overrides |
| Preferred Supplier Relationship Benefits | Suppliers gain knowledgeable and motivated work force they only pay if successful. Travel agencies gain possibility of earning higher commission and get boost from relationship in ads, sales training and promotions. |
| Travel agency sources of income | commissions, overrides, fees, service charges, markups, miscellaneous amounts from passport photos, travel guides, etc. |
| Commissions | largest share of income |
| Fees | Need clear policy on when fees apply. Service fees account for at least 10% of gross revenue. Any service for which no commission received should warrant fee (i.e. passports, dining reservations, etc.) Markups added when creating a package. |
| consortium | association of agencies that retain their independent identities but pool their resources for certain purposes (e.g. access to marketing resources, technology, preferred supplier relationships and training) |
| cost of employees | largest expense for travel agencies |
| voided accountable documents | all numbered, so must write "void" if not used. Record of voided documents must be kept for 2 years. |
| Miscellaneous charges order (MCO) | used when standard ticket stock cannot be used. Records deposits and full prepayments for transportation, tour packages, supplemental charges, accommodations or additional collections. Must clearly describe type of service for which it is issued. |
| Prepaid ticket advice (PTA) | authorization for an airline ticket to be issued at a point other than the point of payment. Often used when someone in one city wants to pay for the airline ticket of someone in another city and there is no time for travel agent to issue and send the ac |
| Tour Order | records payment for tours and has four "service/accommodation" coupons, each of which is used for something different. Discontinued manual tour orders in favor of automated. |
| Voucher | any document used to confirm arrangements, identify clients, or indicate payments made |
| Invoice | indicates the amount due from a client. Implied contract between the agency and client for services rendered in exchange for payment |
| Receipts | invoices that indicate an amount paid and method of payment |
| Computerized Itinerary/Invoice or Layman Language Invoice | GDS generated document containing the booking information from the client's PNR (passenger name record) translated into user-friendly language. Can include standard notices or advice. Used by agency to track payments and commissions too. |
| Air Travel Card (ATC) | World's first charge card issued by more than 30 airlines and accepted by more than 200 airlines worldwide. Only used for travel-related services |
| Travel Agency Service Fee (TASF) | ARC system that allows agencies to accept credit card purchases for non-ARC items such as service charges and to process them through the Area Bank Settlement Plan for a 3.5% fee. Eliminates need for agencies to make arrangements with credit card cos. |
| Steps for agency to avoid liability for problems collecting on credit card | ask cardholder for photo ID that has current address, check exp date, signs charge auth in your presence, compare signature with cc, validate charge form, obtain proper authorization from credit co. and get approval code. |
| Check policies | proof of ID shown and noted on check, no cash back for check, don't accept if not willing to cover bad check, hold tix till check clears |
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