Keeping supplier money apart from your commission
How a travel agent keeps money collected for airlines, hotels and tour suppliers apart from its own commission and fees in the books.
By Achekam · · 4 min read · For Travel businesses in South Africa, Nigeria, Kenya
A traveller pays your agency for a package: flights, several lodges, transfers and a day tour. The money lands in your bank. Within weeks almost all of it will go out again, to the airline, the lodges and the ground handler. What stays with you is your commission and your service fee.
If your books treat the whole package price as your sales, they tell a flattering and misleading story. Turnover looks enormous, margins look tiny, and anyone reading the accounts, a bank, an investor, or SARS, NRS or KRA, gets the wrong idea of what your business earns. Worse, the money you hold for suppliers looks like your money to spend. This article sets out how to keep the two apart in Achekam today.
Gross bookings are not your turnover
Travel agents usually act as agents: they arrange travel that someone else provides. The traveller's money for the flight belongs, in substance, to the airline; the agency's income is what it earns for arranging it. Whether you act as agent or principal for a particular product, such as your own packaged tour, is a judgement your accountant makes from your contracts, and it decides what your revenue is.
Air tickets show the principle clearly. Agents in IATA's programme sell tickets and remit the money to airlines through IATA's Billing and Settlement Plan, which handles the selling, reporting and remitting of ticket sales between agents and airlines. That money passes through the agent; it is not the agent's income.
Track gross bookings as a sales measure if you like. Just do not report them as revenue.
Accounts for money held for suppliers
Each business in Achekam has its own double-entry ledger with a standard chart of accounts, and accounts can be added, renamed or switched off. With your accountant, add:
- Money held for suppliers, a liability: what travellers have been invoiced for supplier services that suppliers have not yet billed you for.
- Commission income and Service fee income, so your own earnings have their own lines.
Keep the supplier portion and your fee on separate invoice lines from the start. Each line can then carry the VAT treatment your accountant agrees, and the month-end journals below become simple arithmetic.
What an invoice posts today, and the journal that corrects it
Issuing a customer invoice posts it to the ledger as debtors, sales and output VAT. At the time of writing, all invoice revenue posts to one account, Professional Services Revenue (4100), and a line cannot name another sales account. So a package invoice puts the whole price, supplier money and fee together, into revenue.
The correction is a month-end manual journal, built from a schedule of the month's invoices:
- Debit Professional Services Revenue with the total supplier portions invoiced in the month.
- Credit Money held for suppliers with the same amount.
- Separately, debit Professional Services Revenue and credit Service fee income with the month's fees, if you want fees on their own line.
A journal that does not balance is refused, and so is one dated in a closed month, so post it before closing. A posted journal is corrected only by a reversal, which keeps the trail clear if the schedule was wrong.
Supplier bills that clear the money held
When a lodge or ground handler invoices you, record a supplier bill, line by line with VAT. A bill without a purchase order waits for approval before it posts, and it can then be paid in full or in parts from a chosen bank account. Posted bills land in the ledger as expense, input VAT and trade payables.
Because the supplier's cost has already been taken out of your revenue by the month-end journal, it must not also appear as an expense. So add a second line to the month-end journal: debit Money held for suppliers and credit the expense account the month's supplier bills posted to, for the total of those bills.
The balance left on Money held for suppliers is then meaningful: money you have invoiced travellers for that suppliers have not yet billed you. Check it each month against your bookings. A balance that keeps growing is a sign that supplier bills are missing.
Reading true commission income in management accounts
Management accounts show an income statement for a chosen period beside the period before, and a balance sheet at period end, exportable as PDF or CSV. With the journals in place, the income statement shows your commission and fees as revenue, and the balance sheet shows the money you hold for suppliers as a liability. The trial balance lets you check both accounts at any date.
Commission that suppliers pay you after the stay is a separate stream; see invoicing and chasing commission hotels owe you. Deposits you pay suppliers in advance are covered in recording deposits you pay to lodges and airlines, and gateway fees deducted from traveller payments in matching gateway payouts and fees.
VAT questions to settle with your accountant
The journals above fix the revenue picture, not VAT. VAT follows the invoice lines. Settle with your accountant, in writing:
- which supplier amounts you invoice in your own name and which as an agent;
- the VAT treatment of each kind of line, including international flights and travel outside your country;
- how your commission and fees are taxed, and whether commission from foreign suppliers differs.
Then set every invoice line accordingly from the first booking of the month.
Starting at the next month end
Add the accounts, split supplier amounts and fees onto separate lines on new invoices, and build the month's schedule. Post the first pair of journals at month end, and read your income statement again. It will show a smaller turnover, and a far more honest one.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
