INSTITUTE OF HOTEL MANAGEMENT CATERING & NUTRITION, PUSA.NEW DELHI.

CONTROL OF CASH AND CREDIT

The hotel industry is the only business where the guest enjoys the benefit of credit
facility right from the time he comes to the hotel and where the business man whose
primary objective is to collect revenue when the transaction is over being deprived of
that and gets benefit only on or after the departure of the guest and that too
sometimes after a period of 30-40 days in normal course. This results in the blocking
of money and hence creates a situation of greater risk and this demands higher
investment and hence it is important that the hotel takes some definite and concrete
steps to ensure that the guest accounts will be settled in full at the agreed time
therefore protecting the hotel from bankruptcy due to bad debts. The hotel should
control the credit of its guest to also insure a healthy cash flow. Cash flow means the
money which moves in and out of the business. The term credit control refers to the
various measures taken by the hotel to ensure that the guest settle their account in full
either themselves or someone else on their behalf {which may be a credit card
company, airline company, corporate office, a travel agent or person} within a
specified period of time.

Cash Control – Cash control involves all the transactions which the guest makes in
cash with carious sales sections of the hotel. The cash is collected from the guest and
entries are made in the corresponding systems. The cashiers must ensure that all the
cash available with them is always under lock and the key should not be left
unattended at any point of time. All payments in local currency, foreign currency,
traveler cheques and bank drafts are considered to be a part of cash sales. The cash
collected on a daily basis is either sent to the bank or handed over the concerned
manager at the end of each shift.
Most hotels request for a payment guarantee against a reservation in order to
guarantee the same. This happens in case of resorts, especially during peak seasons.
A hotel may handle the cash received as advance in various ways, depending on the
hotel policy.

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1) A hotel may put the cash received as advance in a safety deposit locker with the front
office cashier. The cash received is counted and put in an envelope. The
denominations of the cash are mentioned on the envelope and the envelope is sealed
and signed by the cashier. The envelope also bears the details of the reservation
against which the advance has been received, preferably with the confirmation
number of the reservation. A note is also left on the reservation in regards to the
advance received. The payment is credited to the guest account once the check-in has
been done.

2) Some hotels treat advance cash as a payment received on the same day against the
booking concerned. These hotels make a city ledger entry on their systems and settle
the same with the cash received. The cash is dropped in the cash deposit box to be
sent to the accounts department or handed over to the concerned manager. The
cashier then also leaves a remark on the reservation regarding the advance payment
received. Once the guest checks-in and the folio is opened on the system, a
corresponding city ledger payment entry is done on the folio which shows as a
negative entry on the folio (City ledger is done to negate the city ledger entry done at
the time of the advance being received.)

Protection of Hotel Funds – A hotel may take one or more of the following steps to
protect its cash funds –
1. Cashiers may be asked to make frequent cash drops so that they have smaller
amounts of cash to handle at any given time.
2. Cash drawers are made accessible only to one cashier at a time and should be kept
close under a lock when not in use.
3. Alarm systems or CCTV may be installed in areas where cash transactions take place.
4. All staff members are instructed to inform the management in case they see any
suspicious person on the lobby or guest area.
5. Route being used to take the cash to the bank should be changed from time to time.
6. Staff car drivers, security personnel should be recruited after thorough investigations.
Also the combination of driver and security personnel should be changed from time
to time and disclosed only at last moment.
7. Hotel staff in-charge of taking the cash to the bank should be trained to handle
emergency situations.
8. Cashiers in hotel should be briefed to lock or take out the cash from the drawer in the
event of a fire, bomb threat or any other emergency where evacuation of the area has
to be done.

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CASH CONTROL:
- All cash must be kept under lock and key and under the supervision of the cashier.
- The cash bank/float given to the cashier is also controlled and a check is kept on the
same
- The cashier should take proper precautions when dealing with foreign currency.
- Whenever the guest pays in cash the cashier has to make a cash receipt and hand it
over to the guest.
- The cash collected everyday should be sent to the bank for deposit.

Credit Control
Objective of Credit Control Measures –
1. To avoid and prevent any loss due to walk-outs
2. To reduce the problems of inconvenience which the cashier, housekeeper and the
management may face due to a walk-out
3. To prevent late settlement of guest accounts
4. To avoid guest annoyance or embarrassment at the time of check-out when a guest is
informed that a hotel does not accept a certain mode of payment or a particular
currency.

Types of Credit Facilities

There are two types of credit facilities provided in the hotel. The resident guest is
ordinarily allowed credit so long as they stay. These guests pay the bills only at the
time of departure. There is yet another type of credit facility under which the gust
may not pay the bills even at the time of departure. Such bills are subsequently paid
by the travel agents, airlines a/or any other establishment who authorize or sponsor
the stay of such guest. The credit control measures in dealing with guest who are
supposed to make direct payment at the time of departure are as follows:

a. In case where the guest arrives without reservation and has scanty baggage or no
baggage at all, she/he should be asked to make an advance payment.

b. Every hotel has credit limit for guests with instructions of direct payment. If the guest
bill exceeds the credit limit or if the guest account shows unusual accumulation of
credit, the guest should be asked to pay an advance/deposit till the final payment of
bill on departure.
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c. Every voucher or check raised by various sales outlets for services render to the guest
may be signed by the concerned guest as a token of having received service on credit.
d. Cash advance or paid outs should be extremely restricted.
e. Cheques should never be accepted.

The control measures in respect of extending credit to travel agents, airlines and
various other concerns that authorized the stay of their clients are as follows:

a. There should be a comprehensive credit list. Every organization who wants to be on

the credit list of the hotel must pass through necessary scrutiny as to their financial
standing, business prospect with the hotel, etc. The travel agents who are approved by
the department of tourism, Government of India, should only be allowed credit. In
case of airlines, members of world bodied in the airlines should be allowed credit.

b. Whenever credit is allowed to the guest or clients of parties on the credit list, there
should be proper authority letter, travel agent’s voucher or airlines voucher
authorizing the credit and the bill should be for those services which are specifically
authorized. Extra should be collected from the guest at the time of departure.

c. Credit allowed to various parties should be properly followed up for timely recovery
and their credit worthiness should be periodically assessed.

Various steps are to be taken by different front office personnel at different stages of
the guest cycle that will help in credit control.
Credit control procedures used for different guests at the front desk during check-in:

Guest paying by credit card:

- Guest is required at the time of check-in to present his credit card.
- Name on the card is tallied with the name on registration card.
- Check expiry date of the card.
- Check that the hotel accepts the type of credit card presented by the guest.

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Guest paying by travel agent voucher:

- Guest presents the prepaid travel agents voucher at the time of check in.
- Read the instructions on the voucher carefully.
- These are then tallied with the record copy the travel agent has sent to the hotel in
advance at the time of reservation.
- The receptionist will then attach this voucher to the guest registration card and then
sends it to the cashier who will open the folio and mark the instruction as required on
the folio.

Guest checking in with tour groups:

- Groups are usually prearranged and pre-registered and the credit procedure is
established between the tour operator and the hotel much prior to arrival.
- The cashier in such a case will open a master folio in case of group charges.
- The POS cashiers are informed not to make any credit sales transactions to any group
member for their personal incidentals/expenses and charge cash for the same.

Guests from Airlines:

There are two types of guests sent by the airlines:
Layover guests: These guests are provided with PSO {Passenger Service Order} or
MAO {Meal and Accommodation Order} which detail the services and facilities that
will be provided by the hotel to such guests and the airline will pay for the same. The
folio in this case will be signed by the guest at check out and the bill is forwarded to
the airline company for payment

Crew: These guests have to sign their bills on checkout which are forwarded to the
airline for payment. Services and facilities which are provided by the hotel and paid
for by the airline are mentioned in the contract which the airline makes with the hotel

Guests having all their charges billed to the Company:

- Look through the billing instructions given at the time of reservation to check what
charges are covered by guests and what charges are paid by the company.

- If the room charges are to be billed to company and other incidentals are paid by the
guest himself such as laundry, food etc. confirm with the guest at the time of check in
itself how he will pay his incidentals and the same instruction must be marked on the
folio.

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- Examples of such guests are members of FHRAI and TAAI. In such cases a split
folio is used where charges are charges are distributed into two {between
company/organization and individuals} one for rooms and the other for incidentals.

Guest with scanty baggage:

- These guests are not allowed to purchase anything on credit. All payments are to be
settled in cash unless well known to the hotel.
- An advance/deposit is taken from them at the time of check-in to be adjusted against
room and incidental charges.
- The registration cards, folio and arrival notification slips will have APC {All
payments cash}.
- A credit limit is also fixed in case of well-known guests with scanty baggage and the
moment his outstanding balance reaches the limit the night auditor prepares a slip
which tells the guest to deposit some cash before making any new credit transactions.

Walk-in/chance guests:
- To avoid any possibility of a skipper and hence loss of revenue, the hotel will usually
ask for an advance payment or deposit at the time of check-in.
- The deposit should be enough to cover the room charges and incidental charges.

Credit facility for companies/ corporations:

Hotels have to check the solvency status of the company first and also cross check
with the company’s banker before listing the company on the list of credit approved
companies of the hotel.
The account department maintains this list and is sent to the other departments of the
hotel such as reservations, front desk, bills, sales etc.
Different limits are set for different companies, depending on the size of the
company, volume of business provided and the reputation of the company. For
example a company with reputation of prompt payment shall get a higher credit limit
rather than a newer and smaller company.

Credit control during stay of a guest:

A credit limit is set for the guest depending on his credit profile and then in turn must
be marked on his folios. The front office must monitor guest and non-guest accounts
to ensure they remain within acceptable credit limits. Typically, a line of credit is set
for guests who establish charge privileges during the reservations or registration
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process. Guests who present an acceptable credit card at registration may be extended
a line of credit equal to the floor limit (The maximum credit limit - Set by the issuing
credit card company). Guest and non-guest accounts with other approved credit
arrangements are subject to limitations established by the front office. These internal
credit restrictions are called house limits.

Front office management may need to be notified when a front office account
approaches the house limit. Such accounts are called high risk or high balance
accounts. The front office auditor, or night auditor, is primarily responsible for
identifying accounts which have reached or exceeded predetermined credit limits.
Front office management may request the guest to make a partial payment to reduce
the outstanding account balance.

After departure activities:

If the guest settles his bill through credit card or airlines voucher or travel agents
voucher or through a corporate company account his room account is zeroed out at
the time of check out and the outstanding balance is transferred to the city ledger.
At the end of a specified period the hotel accounting department sends the bills
statement to the concerned company for making the payment and it is expected out of
the companies that they will make the payment promptly.
If they are late in doing so a follow up measure will be taken by the hotel requesting
them to speed up the payment in case of further failure a strong reminder will be sent
and if all these measures don’t produce any results a legal notice through a lawyer
will be sent.
Hotels must ensure that the guests who are given credit facility from the hotel are
able to pay their bill in full within the scheduled period of time and only then the
hotel should fix a house limit. Usually the hotel’s credit policy allows credit to:

1) Guaranteed payment reservation guests

2) Company guarantee payment guests
3) Credit card guarantee guests
4) Deposit/advance payment reservation guests

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Problems in credit control may arise if:

1) Guest is not explained clearly as to which credit cards/foreign currencies are accepted
by the hotel.
2) The guest is not informed that if his bill exceeds the house limit he will have to pay
the balance in cash.
3) Communication gap between accounts department and cashier or night auditor and
cashier.
4) Negligence by the staff to look at the black list.

Some common causes that may cause the above problems may include –
1. The guest is not explained clearly regarding the mode of payments accepted at the
hotel
2. Communication gap between the credit department and the front office cashier.
3. Negligence and carelessness. Eg – ignoring the high balance list or black list.
To avoid such problems, it is essential that the guests are given clear instructions at
the time of check-in, timely notification of the exceeding credit limit and instructions
to sign the bill, in case the payment is to be made by their company, before they
check-out from the hotel.

Charge Privileges

At the time of check in a guest is required to present a direct billing authorization or

an acceptable credit card. In computerized system, credit is established at the time of
reservation when an advance is paid by the guest to confirm the room booking. After
obtaining the card number and expiry date of credit card, information is sent to the
credit card company with a request for an amount guarantee. Then the guest is
authorized to make credit purchases. The purchase made by the guest is
communicated to Front Office from the point of sale for proper account posting.
Guests who pay cash for accommodation at the time of registration or are being asked
to do so(advance payment)are generally not extended charge purchase privilege.
They are called Paid-in-Advance or PIA guests. The PIA guests are set to a non-post
status. No-Post Status accounts are those accounts to which credits are not accepted.
For a no-post status guest the point of sale or revenue center cashier asks the guest to
settle the bills directly in cash.

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Credit Monitoring

The Front Office monitors guest and non-guest accounts to ensure that they are
within the permissible credit limit, by the credit card companies for credit cards and
by the management of the hotel for the charge privileges extended to the guest.
Though floor limits are set by the credit companies, still Front Office need to take
approval on the credit card. All accounts with the other approved credit arrangement
are subjected to limitations established by the Front Office. These internal credit
restrictions are called House Limits. When an account approaches credit limit, is
called a High Risk or High Balance Account. These are notified by the night audit
and further credit is not accepted to these accounts unless the situation is resolved. In
case of the accounts to be settled by credit cards if the account approaches the floor
limit or crosses it or request the guest to make a partial payment to reduce the
outstanding account balance.

Tracking Transactions
A transaction initiates accounting activity in Front Office accounting system. Proper
posting systems depend on the nature of transactions and its monetary value.
Different type of transactions have different effects on the Front Office accounting
system. Each type of transaction is communicated through a different voucher to
Front Office.

Various transactions are:

1. Cash Payment: Cash payments are made at the Front Office either to decrease the
balance of account, to settle an account or to prepay accommodation (advance
payment). Cash payments made are credited on the proper folio and Front Office uses
a cash voucher to support such transaction. When cash is paid for any goods services
purchased at a location other than Front Desk, no entry is made on the account folio.
That particular account is credited, increased, settled and closed at the point of sale.

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2. Charge Purchase: A charge purchase represents deferred payment

transactions, which mean the guest(buyer) receives goods and services from the
hotel(seller) butdoes not pay them at the time they are provided. A charge purchase
transactions(debit) increases the outstanding balance of the account. When the
transaction does not take place in the Front Desk, it is communicated for proper
posting by means of a charge voucher or an account receivable voucher. Ideally a
charge voucher should bear the signature of the guest, which act as a token of
acceptance of services of good by the guest.
3. Account Correction: an account correction transaction rectifies a posting error on a
folio. An account correction is made on the same day the mistake is made, before the
close of the business, i.e. before the night audit is done. An account correction may
increase or decrease the outstanding balances of the account, depending on the error.
A correction voucher is used to document an account correction transaction

4. Account Allowance: Account allowance is involved in two types of transaction. One

is given for poor service and for rebates for discount coupon; the other one is given
for correction for posting error detected after the close of business, i.e. after the night
audit is done. Such an error is separately entered in the accounting record of the
appropriate revenue center and thus corrects the same. An accounting allowance is
documented by the use of an allowance voucher and it normally requires an
authorization by a managerial staff.

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Hotel XYZ

Allowance Voucher

Date:

Name: Room No:

Explanations Amount

Approved By Signature

5. Account Transfer: This involves two different accounts. This operation is supported
by a transfer voucher and it reduces the balance of the original folio and increases the
balance of the destination folio. This situation may arise when one guest offers to pay
a charge posted to another guest’s folio. An account transfer may also occur when a
departing guest settles his account by using credit card. Here the outstanding balance
is transferred from the guest account to non-guest account.

6. Cash Advance: Cash advance is a transaction that reflects cash flow out of the hotel.
It is a debit transaction and it increases the outstanding balance of an account. It is
supported by cash advance voucher and when paid on behalf of a guest, then
supported by a paid-out voucher (Visitors Paid Out, VPO). For cash advance or paid-
outs, guest is asked to sign on the paid-out vouchers.

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Internal Control

Internal control in the front office involves:

• Tracking transaction documentation.

• Verifying account entries and balances
• Identifying vulnerabilities in the accounting system.
Auditing is the process of verifying front office accounting records for accuracy and
completeness. Each financial interaction produces paper work which documents the
nature and the dollar amount of the transaction.

For example, consider the transaction which occurs when a guest charges a meal to
his or her individual folio. This transaction be likely be supported by the restaurants;
guest checks, cash register recording, and the charge voucher. The charge vouchers
are prepared in the revenue centre and send to the front office as a notification of the
transaction. In a semi-automated front office, a front desk agent, updates the guest
folio, and files the charge voucher. Later that day, the front office auditor ensures that
all vouchers are sent to the front office have been properly posted to the correct
accounts. In the case for this example, the auditor will match the front office total of
charged from the dining room. Discrepancies in accounting procedure are easy to
resolve when complete documentation is readily available to substantiate account
entries.

Cash Banks

A cash bank is an amount of cash given to a cashier in order to make handling of

various transactions easier. Only one person, who signs for it, has excess to the cash
bank and is solely responsible for it. At the end of the shift the cash bank amount is
separated out and remaining cash is deposited put in an envelope. Monetary
differences between the money place in Front Office cash envelope and cashier’s net
cash receipt is noted on the envelope as overages, shortage or due backs. Net cash
receipts are the amount of cash, cheques and other negotiable items in the cashier’s
drawer minus the initial cash bank plus the paid-outs. An Overage occurs when after
the initial bank is removed, the total of the cash, checks, negotiable, paid-outs in the
cash drawer is greater that the net cash receipts. A Shortage occurs when the total of
the contents of the drawer, is less than the net cash receipts. A Due back occurs when

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a cashier pays out more than the amount received as cash bank, and there is not
enough cash in the drawer to restore the initial bank. (Due Backs are also known as
Due Bank).

Front Office Cash Sheet

Since Front Office is responsible for handling cash transactions of guest and non-
guest folios, proper procedure and control is required to be established. Front Office
cash sheet is a document that enlists the receipt and disbursement of cash. The cash
sheet is used to reconcile cash at hand at the end of the day/shift. The various
transactions that are recorded on the cash sheet are, the settlement amount on
departure of a room, advance paid by a guest at the time of registration and various
paid-outs given to guests or on behalf of the guest.
Turn In
Turn in involves every type of non-negotiable money including cheques, travelers
cheques, foreign exchange, cash in poor conditions and vouchers for house expenses.
If the total of all these items is less than the net receipts of the day, enough cash is
added to clear the drawer of all funds except the original bank. The cashier always
retains the exact bank, the turn in includes overages or allows for the shortages.

Hotel XYZ
Cash Sheet

Cashier From To (time) Date

Cash Receipt Room No Folio Explanation Room Cash Disbursement

Name
No. No.
Misc. City Guest Paid on Paid In Departure
ledger Ledger Guest City Ledger or
Account Advance
Ledger Misc.

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Account Aging – Normally companies on credit list make their payments in

accordance with the hotel credit policy as mentioned on the contract. Account Aging
is the time period between billing and payment, which may range from instantly to
one month or even more. There are various factors that may affect the duration of
payment. These factors may include quantum of business, contractual agreement,
frequency of bill sending etc. Generally hotels allow a time period of 15-30 days to
their corporate clients to settle their outstanding payment. However, in the event of a
company taking more than the stipulated time, credit manager and General Manager
should be informed immediately. The hotel may initially send a reminder notice to
the company requesting them to settle the outstanding payments and may be forced to
take legal measures in case of further delays.
At large hotels accounting division monitors account ageing and in small properties
night auditor may assume this responsibility. An account age analysis sheet identifies
which account receivables are 30.60.90 days old. Accounts older than 30 days are
called OVERDUE. Accounts older than 90 days are considered DELINQUENT.

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