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The best way to learn from Thomas Cook and safeguard your agency

Features07 Feb 2020by Farina Azam

Agreements between agents and tour operators are crucial to protect both parties, as the Thomas Cook failure proved.

Farina Azam

Partner & Travel Lead

Farina Azam

Partner & Travel Lead

The Thomas Cook failure highlighted a number of flaws in the way tour operators and travel agents deal with each other – which was ultimately to the detriment of customers.

To prevent this happening again, agency agreements must be updated.

In the pipeline

One of the main issues that arose from Thomas Cook’s collapse was its practice of requesting customer payments early and holding them for a significant time period.

While payments are held by the agent (commonly known as “pipeline monies”), they are at risk if the agent was to financially fail – unless financial protection is put in place, such as Abta’s retail agent financial protection scheme.

In order to provide protection, the following payment terms must be included in the agency agreement:

If the agent is bonded with Abta, pipeline monies will only be protected by its financial protection scheme as long as: the tour operator did not offer any credit terms to the agent; payment is remitted within 14 days of receipt from the customer; and the tour operator chases any outstanding payments regularly (and in accordance with Abta’s credit control procedures – visit abta.com for more information).

Prohibition on agents collecting payments early: agents should not be permitted to collect customer payments before the balance due date (or to offer incentives or discounts to customers to make early payment), and if customers do make unprompted payments before the balance due date, this should be remitted to the tour operator within 14 days of receipt by the agent.

This reduces the risk of an agent financially failing while holding pipeline monies.

Tour operators cannot prevent agents from offering discounts or incentives more generally: to do so would be a restraint of trade.

Provided agents still pay the net sum to tour operators, agents are permitted to offer discounts and incentives to win bookings – but they must still remit those payments to tour operators in accordance with the agency agreement’s payment terms.

Passing on documents

When Thomas Cook failed, there was confusion among customers about who their booking was with, with many not realising their holiday was actually with a third-party tour operator and could still be provided.

To reduce the risk of this happening again, there should be a contractual obligation on agents to pass on to the customer the tour operator’s confirmation invoice and other paperwork that makes it clear the customer’s contract is with the tour operator.

If the agent issues their own paperwork to the customer, they should make it clear that they are acting as an agent on behalf of the tour operator (this is also critical from the agent’s perspective to ensure they don’t end up liable to the customer for provision of the holiday – and to protect the agent’s Toms status).

Data sharing

To ensure data sharing between the agent and tour operator is GDPR-compliant, there should be properly drafted data sharing clauses in the agency agreement.