We own a tourism business which manages a number of properties each individually owned by our clients. We work on a commission plus management and marketing fee pricing structure. Currently, we are receiving zero income and several of our clients are unable to pay our marketing and management fee. Rather than isolate those owners who cannot pay I would prefer to reward those who can and are therefore keeping our business afloat, at a later stage. Do you have any suggestions on how best to do this? I was thinking that for all payments made over the next three to six months we would repay in the summer of 2021-2022 when the tourism market has hopefully recovered. My problem is I do not want to negatively impact cash flow at that point.
The tourism and hospitality industries have probably been the most negatively affected sector of business as a result of the coronavirus pandemic as all activities have effectively come to a halt. The uncertainty that you face is complex, especially as the South African government has not provided any indication on when we will move into a less restrictive phase of lockdown. They have, however, indicated that the country could be moved back into a more restrictive lockdown if the spread of the virus worsens. On top of this, there is no way of knowing how tourism and travel will be affected after lockdown has been lifted and after the national state of disaster. Travel restrictions may remain in place for many months as the world waits for a vaccine to be developed. In addition, customers and tourists may be hesitant to travel while the fear of the virus is still fresh in the memory.
Your idea to reward clients who are able to pay you during this time is a great way of approaching business, although we would advise not to commit to negative cash flows in the future for services you are offering now. This could end up resulting in more financial pressure if future tourist seasons are negatively affected as a result of the Covid-19 pandemic.
Our advice would be to consider a lockdown special whereby any clients who are able to pay your fees during this period will receive a discount in the future. For example, for every month they are able to pay during the lockdown, they will be eligible for a 25%, 50% or 75% discount in a month after lockdown. In this manner, you will effectively be encouraging your clients who are able to pay and want to use your services in the future to remain your clients without jeopardising your future cash flow. While you may be offering discounted prices, you will at least not be adding an expense to your bottom line for the services you will be offering.
You may also want to consider offering a different service to those clients who cannot afford to pay during these times, with the aim being to keep them on as future clients while not exhausting your working capacity. While this might be difficult to do during these times from a cash flow perspective, it is also important to value the service you offer to your clients. If you are adding value to someone, you have a right to be remunerated for that service.