Credit limits for a hotel's corporate accounts
How a hotel should set a starting credit limit for a company that books on account, watch it with two reports, and raise it only when it is earned.
By Achekam · · 4 min read · For Hospitality businesses in South Africa, Nigeria, Kenya
A construction firm's site team stays with you most weeks. Its travel coordinator asks for an account, so the engineers can check out without paying and the invoices can go to head office. It sounds like good business, and often it is. But from the day the account opens, your hotel is lending that company money. The room, the dinner and the bar tab are delivered now; the cash arrives whenever its accounts department gets round to paying.
Hotels rarely get hurt by the first booking on account. They get hurt by a balance that grows quietly while nobody is looking at it. This piece sets out how a hotel, lodge or guesthouse in South Africa, Nigeria or Kenya can set limits for corporate clients, watch them, and raise them only when the customer has earned it.
An account is a loan to the company
ACCA warns that extending customer credit to win sales can reduce cash, push a business into an overdraft, and cost more in interest and bad debts than the extra sales earn. Investopedia makes the same trade-off plain: lower credit standards boost sales but also increase bad debts.
In a hotel the cost side is easy to overlook, because the room might otherwise have stood empty. But the kitchen, the laundry and the wages are paid in cash this month, whatever the corporate client does. Before any account opens, decide three things and write them down:
- who in the hotel may approve a new account;
- the starting limit and the payment terms;
- what happens when the limit is reached: stop charging, ask for payment, or refer the decision to a manager.
Start low, and let trust raise the limit
ACCA advises setting a credit limit for each new customer that grows only slowly as trust grows, with attempted breaches reported to the credit controller. It also describes a common trick: a new customer places and promptly pays a small order, then delays payment on a large one.
In hotel terms, that is the company that settles its first two-night stay within days and then books its year-end function on account. Prompt payment of a small bill is a reason to review the limit, not to remove it. A sensible way to raise limits:
- Review each account after a set period of trading, not after one good payment.
- Look at how long the customer actually takes to pay, not the terms on paper.
- Raise the limit in steps, and record who approved each step.
- For a large event that would take the account well past its limit, ask for a deposit instead. Deposits for group bookings covers taking and recording them.
Two reports to watch every week
ACCA recommends monitoring receivables with two reports: an aged analysis, showing how much each customer owes and for how long, and a credit utilisation report, showing how much of each customer's limit is being used.
The aged analysis comes straight from Achekam. Receivables are aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals. Run it weekly in the accounts office and watch for corporate names drifting to the right, out of the current column.
Credit utilisation is the habit of comparing each account's balance with its limit. The customer sitting at the edge of its limit is the one whose next booking deserves a phone call before arrival, not an awkward conversation at checkout.
Charging to an account at the till, and the limit check
With the Wholesale add-on, a business keeps trade customers with credit limits, terms and a hold. For a hotel, each corporate client becomes one of these trade customers, created on the Wholesale screen.
When a till sale is charged to a trade customer's account, Achekam writes a receivables invoice for it and checks the account's hold and credit limit first. Every till sale that reaches the server posts a balanced journal in the same step, and a sale on account posts to the receivables side of the ledger. The dinner a guest signs to the company account therefore becomes money that company owes, with nobody retyping it: the sale goes from the till into the ledger and onto the aged analysis. If the account is on hold, or the charge would take it over its limit, the charge stops unless a supervisor or manager overrides it with a reason.
Use the hold for the account that has gone quiet. Put it on hold when an invoice passes the age your policy sets, and lift it when the payment clears.
Overrides, and when to refuse one
An override has honest uses: a long-standing client halfway through a stay, or a limit that should have been raised last month. It is also exactly the breach ACCA says should reach the credit controller. Because every override carries a reason, those reasons are what the credit controller reviews each week.
Refuse the override when:
- the account is on hold for unpaid invoices, rather than simply having a limit that is too low;
- the same account has needed overrides on several recent nights;
- the person asking is the person who approved the account in the first place.
Accept it, and then fix the limit properly, when the customer's payment record supports a higher figure. A limit that needs overriding every week is a limit set wrong.
The credit file behind each company
For each corporate account, keep the signed application, the agreed limit and terms with the approver's name, every change to the limit, and the reasons for any override. ACCA's article on managing accounts receivable explains credit limits, aged analyses and credit utilisation reports in more depth, and writing a credit policy turns them into rules your front office can follow.
This week, take your largest corporate balances, compare each with what the hotel could afford to lose if that company stopped paying, and set the limits from there.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
