More incidences of unusual payment terms are causing a stink in the industry, making service providers question the risks behind post-event payment practices and ways to mitigate them.
By KRISTIE THONG
The economy’s increasing unpredictability has led to businesses practising heightened financial caution. Becoming especially protective over assets, intellectual properties and cash flow, this has brought upon an industry issue where payment terms aren’t as clearly defined, leading to friction between buyers and sellers and sometimes damaging relationships.
Service providers have started to see an increase in post-event payment terms within MICE contracts. While the trend had been prevalent in the more mature markets of the US and Europe, it has started creeping into the Asia Pacific region, causing a stir of uncertainty over expectations. Event companies and hotel/venues alike have encountered clients requesting for post-event payment, and then refusing or delaying payment citing cash flow problems or having to adhere to specific in-house payment cycles.
A senior executive working in an international hotel chain believes this issue will increase as more companies start looking at organising their meeting and events spend. This is sometimes beneficial as it allows venues or hotels an opportunity to open up dialogue, and make prior agreements on common terms and conditions (T&C) that are fair to both parties.
“Having pre-agreed T&C at a remit of key hotels in the region will arguably facilitate increased meetings and events into the hotels,” he says.
On the flip side, venues will be exposed to later payments and see an impact on cash flow. While T&C floating around at the moment vary in severity, venues refusing to adhere to them will inevitably lose out on MICE business.
AONIA managing director Daniel Chua says that agencies usually include deposits and punctual payment terms in the contract.
“If a client pays you a deposit in time, it’s very essential that agencies pay the suppliers or venues in time. But if the client has not paid due to some issues, it comes down to the agency’s relationship with the suppliers and venues, and try to seek their understanding.”
To be or not to be
While it’s not in the best interest of venues or agencies to turn down clients who insist on post-event payment terms in their contracts, service providers can find ways to mitigate the risks.
To event companies, Mr Chua suggests they advise the client to pay a deposit as a go-ahead for the event, and the rest of the payment can be amended in subsequent invoices.
“Make sure there is no way the client can give excuses not to give any payment.”
Learning from an experience that saw him awaiting payment for more than three months after the event, he says event companies should make it their business to find out how the internal processes of the client work. For example, large companies typically require a purchase order, as accounts departments will never process payment without them. Payment schedules also differ, and being familiar with them will enable service providers to better manage costings within the contract.
“Large companies also have payment cycles and don’t make adhoc payments as and when, because it breaks the cycle and creates more work. So you’ve got to ask the client about his payment cycle – beginning of the month, end, middle, etc. Unless cash flow is very strong, you better have a clear idea on when their payment cycle is.”
Mr Chua believes other ways to mitigate risk is to have insurance, but agencies will be hard-pressed to find clients who are willing to work the added dollars into the budget.
Alternatively, he feels a finance company may be a solution. Known as a factoring company, it is tasked with assuming debts incurred from the event, paying the agency, and taking over the role of chasing the client for payment.
The hotelier tells micenet ASIA that venues should always try to negotiate the severity of the post-payment clause to be in line with their own financial guidelines.
“We have to ask ourselves if there is a common ground to be reached, or look at the period where the event is being booked. If it is a high-demand period and history provides you with the knowledge that the venue/hotel would be filled anyway, then one must ask if you really need the piece of business on this occasion.”
Should venues and hotels accept a client’s T&C with stringent post-payment conditions, it will have to make sure the attrition on rooms and F&B are water-tight to mitigate risk and loss of revenue.
“And it goes without saying that the cancellation clauses must protect the venue/supplier.”
The word “relationship” has been tied synonymously with post-event payment terms, more so in many parts of Asia. Both event agencies and venues agree that it is easier to be more lenient with a client they’ve worked with previously, as opposed to one-off or new clients.
However, the hotelier believes that prevention is best. Venues and hotels should work to reduce risk by reducing the time frame of post-event, or negotiate for a higher deposit.
“If deposits are not on the table, then the venue/hotel must have a corporate credit card that can be charged in the event of late payment or cancellation, and this must be in the contract. Partial payment can also be requested during an event that spans a
few days, which then limits the exposure post-event,” he says.