This article explores how these businesses can mitigate risk through strategic safeguards, diversified operations, and collaborative risk management to secure better payment terms and improve cash flow.
Many deferred-delivery merchants, such as travel, event ticketing, and custom manufacturing businesses, find themselves subject to enhanced credit risk requirements by payment processors, often facing additional financial safeguards, stringent settlement terms, and complex approval processes. Using airlines as an example, we dive into how deferred-delivery merchants can navigate these challenges more effectively.
The core issue stems from airlines' unique business model; unlike traditional retail where goods transfer immediately upon payment, airlines collect funds for services delivered weeks or months later. This gap between payment and fulfilment creates substantial credit exposure for acquirers, who become liable for chargebacks if an airline cannot operate paid-for flights due to operational or financial difficulties.
Acquirers evaluate airlines through sophisticated risk frameworks that extend far beyond basic financial statements. For example, route diversification plays a critical role. Airlines operating limited networks between few countries face heightened scrutiny due to market dependency risks, while carriers with balanced networks supported by diverse partnerships typically secure more favourable terms.
Rather than simply accepting unfavourable terms, airlines can work with processors to implement tailored credit protection strategies. These range from traditional cash deposits to delayed settlement arrangements, where funds are held until flights are completed to balance acquirer protection with airline cash flow needs.
The most successful airline-processor relationships emerge from collaborative approaches that acknowledge the legitimate concerns of both parties. Regular review cycles allow terms to evolve with changing business conditions, improved financial metrics, or significant volume growth.
Airlines that proactively address risk factors — through transparent financial reporting, diversified operations, and appropriate security measures — position themselves for more favourable payment processing relationships. Understanding the acquirer's perspective enables more effective negotiations and helps airlines prepare for various economic scenarios that might affect their risk classification.
As the industry continues evolving, airlines that master these payment dynamics will secure competitive advantages through improved cash flow management and reduced processing costs.
With 25 years in payments and aviation, Thomas Helldorff previously held leadership roles at Datacash and SITA, where he developed a central payment platform for air transport. He authored the Airline Payments Handbook and holds a master’s in international economics from the University of Innsbruck, including a year at the University of Hong Kong. Thomas is also a frequent speaker at industry events and contributes to thought leadership in airline commerce and payments.
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