Supplier commission: income when booked, paid or travelled?
When a travel agency's commission from a hotel, airline or tour operator counts as income: at booking, when the supplier pays, or after the trip.
By Achekam · · 5 min read · For Travel businesses in South Africa, Nigeria, Kenya
An agent books a family's week at a coastal resort in February for travel in December. The resort pays the agency commission, but only after the guests have checked out, and only if they actually stayed. A tour operator pays commission on a safari package a month after departure. An airline's commission arrangement works differently again.
So when does the agency's commission become income? On the day the booking is confirmed, when the agent's work is largely done? When the supplier finally pays? Or when the traveller has travelled? Different agencies answer differently, and some answer differently month to month. That makes their management accounts hard to read and their year-end figures hard to defend.
What the agency is paid commission for
Start with the contract with each supplier, not with the bank statement. Commission is the supplier's payment to the agency for a service, usually for finding the customer and arranging the booking. The terms decide two things:
- What the agency must do to earn the commission: confirm a booking, collect a deposit, issue documents, or something more.
- What happens if the trip does not go ahead: whether the commission is lost, reduced or kept when the traveller cancels or changes the booking.
Write those two answers down for each of your main suppliers. They drive everything that follows.
Revenue once the promised service is done
IFRS 15 says revenue is recognised when a performance obligation is satisfied by transferring the promised service to the customer, which is when the customer obtains control of it. A performance obligation may be satisfied at a point in time or over time. The IFRS Foundation's summary of IFRS 15 sets out these principles.
For an agency, the "customer" for commission purposes is the supplier paying it, and the promised service is usually arranging the booking. Once the booking is made and confirmed and the agency has done what its agreement requires, that service may well be complete, even though the traveller has not yet left home. Your accountant will look at the specific terms to decide whether the agency's service is done at booking or continues until travel.
Cancellations make commission uncertain
The complication is cancellation. If a resort pays commission only when the guest actually stays, the commission on a confirmed booking is not certain on the day it is confirmed.
IFRS 15 requires revenue to reflect the consideration the entity expects to be entitled to, and where that consideration includes a variable amount, the entity must estimate it. ACCA explains that variable consideration is estimated using either the expected value or the most likely amount, and included only to the extent that it is highly probable that a significant reversal of revenue will not occur.
In practice, for a supplier that pays only on completed stays:
- Look at your own history of cancellations and changes for that kind of booking.
- Estimate how much of the commission on confirmed bookings you expect to keep.
- Ask whether it is highly probable that recognising that amount will not have to be reversed.
If cancellation rates are low and stable, much of the commission may pass that test at booking. If they are high or unpredictable, such as bookings made a long way ahead in an uncertain market, more of it should wait until travel. The answer can differ between suppliers.
The supplier's payment date is not the test
The day the commission arrives in the bank is the easiest date to use, and it is usually the wrong one. It reflects the supplier's payment cycle, not the agency's work. A resort that pays quarterly, an operator that pays a month after departure, and an airline that settles through its own system will put the same kind of income into very different months.
IFRS 15 ties revenue to the transfer of the promised service and the amount the agency expects to be entitled to. The supplier's payment date only tells you when an amount that was already earned is collected.
Recording commission receivable in Achekam
Once commission is earned, it is money the supplier owes the agency. In Achekam, where you invoice the supplier for commission, issuing the invoice takes the next number in the sequence and posts it to the ledger as debtors, sales and output VAT. Receivables are then aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals, so commission a supplier is slow to pay shows up for follow-up.
Many suppliers pay commission from their own statements without waiting for an invoice. Where commission is earned before any invoice can be issued, or the supplier never asks for one, post the earned amount by manual journal as commission receivable, and reverse it when the supplier's payment or your invoice is recorded. Achekam refuses a journal that does not balance or is dated in a closed month, and a posted journal is corrected only by reversing it.
When a booking is cancelled and the commission is lost, reverse the commission that was recognised for it, so the receivable never includes amounts the supplier will not pay.
A short policy note to agree with your accountant
Put the answer in writing, one paragraph per type of supplier:
| Supplier type | When the agency's service is done | Effect of cancellation | When commission is recognised |
|---|---|---|---|
| Hotels and lodges paying on completed stays | At confirmed booking, per terms | Commission lost | At booking, net of expected cancellations, or at travel |
| Tour operators paying after departure | Per terms | Per terms | As agreed with your accountant |
| Suppliers paying on booking, non-refundable | At confirmed booking | None | At booking |
Agree it before year end and apply it the same way every month. If your agency also sells packages in its own name, rather than as an agent, that is a different question about whether the full price or only your margin is your income; see supplier money versus commission.
The next step
Pull the commission terms for your five biggest suppliers, note what earns the commission and what cancels it, and take them to your accountant. For chasing commission once it is earned, read commission owed by suppliers, and for refunds when travellers cancel, cancellation refunds.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
