Reduce last-minute cancellations and fraud by collecting advance deposits.

With fraud on the rise within the hospitality and travel industries, hotels, and travel agents are looking for ways to mitigate the chances of fraudulent activity occurring at their properties.  

Hotels, resorts, and travel agencies are often classified as “high risk merchants” by Visa and MasterCard. This is due to the rate of customer disputes and chargebacks they receive being much higher than the average business thanks to improperly handled cancellation requests or miscommunication surrounding refund policies. 

According to Forter’s 2019 fraud report, the travel industry saw a 61% increase in fraud attacks in 2019. And while hotels and accommodations experienced an initial 10% decrease in attacks, loyalty program fraud rose 89% across all industries. 

While fraud is the number one concern for most businesses, last-minute cancellations are also proving to be a major inconvenience to hotels. The loss of revenue and business due to these cancellations is taking its toll. 

Hotels and travel agencies are finding themselves faced with a challenge – how to continue providing a great experience while protecting themselves against disputes, chargebacks, and fraud.  

A simple way to help fight the fraud epidemic is to collect advance deposits from your guests. In doing so, you’re protecting yourself from would-be fraudsters by ensuring the card is valid and has sufficient funds before the stay. Not only does an advance deposit allow you to recognize revenue faster, it also greatly decreases the risk of cancellations or last-minute surprises after check-out.   

The purpose of an advance deposit is to guarantee a reservation by collecting a portion of the payment upfront, while also acting as an extra layer of protection against fraud. A good rule of thumb for hotels collecting an advance deposit is that it should be equal to one night of a guest’s stay and deducted from the final amount at checkout. 

The travel industry tends to be stricter when it comes to collecting deposits. For leisure travel, advance deposits typically need to be paid within 24 hours of booking and are non-refundable. The amount of the deposit depends on the type of travel the customer is doing and how personalized their trip is. On the other hand, corporate travel is usually more flexible about requiring advance deposits and the extent to which they grant refunds.  

Keeping your cancellation and refund policies as simple as possible, having them clearly stated in writing, and getting your guests’ acknowledgement beforehand goes a long way to ensuring a positive experience. 

As fraud becomes more prevalent, many hotels, resorts, and travel agencies are beginning to require deposits in advance of a guest’s trip. As this practice becomes more common, other hotels and agencies may want to consider adopting advance deposits for their own properties. 

Before adopting this practice in your own business, it’s important to have best practices in place to ensure a smooth process.  

What does this look like? 

Steps for collecting advance deposits:

• Always explain the terms and conditions, including cancellation and refund policies, to the customer. 
• Collect the customer’s name, card number & expiration date, billing address, etc.
• When authorizing the card, if the authorization request is declined, don’t complete the transaction, but request an alternative payment method.
• Send the customer a receipt and include all policies previously stated in writing. 
• If the customer does end up cancelling, issue a refund to the card used in the original transaction. 

While some may be tempted to impose stricter cancellation policies in the hopes of preventing them from happening, it’s important to keep in mind that cancellations are a part of the hospitality industry. Making it difficult for guests to do so will only result in inconveniencing them and could possibly lead to more disputes, chargebacks, and poor publicity.  

If you take all the necessary steps when collecting an advance deposit, the risk of incurring a dispute or chargeback is greatly diminished. 

Requiring an advance deposit won’t deter people from booking at your hotel or utilizing your travel agency, it simply weeds out those who may not have been serious in the first place and prevents a future cancellation from occurring.  

By asking guests to pay upfront, you’re ensuring they really have intentions to stay during the time specified, and they have a greater incentive to follow through on their reservation. Last minute cancellations are something no one wants to deal with, and by collecting an advance deposit, you can reduce the number of people who are booking rooms or making travel arrangements “just in case.”  

Better yet, by following these best practices and collecting an advance deposit, much of the liability falls to the merchant’s processing bank. If the proper steps are followed from the beginning and you’re still hit with a dispute, you have a much stronger defense.