An important aspect of domain knowledge for Airline industry is to understand how the Billing model via IATA functions. It is a common misconception that only IATA affiliated travel agents requires to get enrolled for Billing via IATA. In reality, IATA Billing model can be followed by a host of travel and transport industry entities including Airlines, Hotel chains, Airport authorities, travel agencies, car rental agencies, Travel IT and communication infrastructure providers, Cargo companies etc to name a few.
IATA is the premier organization for formulating policies and regulations for air transport industry. As a corporate organization formed by various entities in the Travel and Tourism industry, IATA also acts as an intermediate between product suppliers and product distributers/marketers for the transport industry.
For this, IATA performs billing via mainly 2 interfaces namely:
- BSP – Billing and Settlement plan
- CASS – Cargo accounts Settlement system
More details of these individual plans is given below:
Billing Overview:
Actors in the IATA based Billing system:
- Product suppliers (PS)– Air service providers, Catering service providers, Hotels/Restaurants, Airline communication providers, Car rental providers, Airport management, baggage and infrastructure providers, IT support/maintenance/infrastructure providers, Cargo companies, shipping companies, Logistic providers
- Product Distributers (PD) – ticketing agents , travel and tourism planners, airline affiliated distributors, Cargo agents, Logistic distributors, marketing partners for Airline/Travel and Tourism companies
IATA handles claims and settlements in clearly 2 tracks, one is CASS stream for Cargo related claims and the other is BSP stream for non-cargo related claims
Terms used for IATA Billing :
- IATA window – the range of date within which the PS and PD should submit IATA file for the consolidated Billing for the month, raise grievances (if any) and receive the amount due
- Claims submission window- the range of dates within which PS and PD are required to submit the IATA files for the particular IATA window
- IATA cut-off date- the date for each IATA window, after which the submission of the claims for the window needs to be frozen until the start of the next window
- IATA Protest cut-off date –the date within which, grievances if any pertaining for billing amounts need to be communicated to IATA by the PS and PD and subsequently settled for the particular IATA window
- IATA settlement date – the date within which the PS and PD receive the amount due for the particular IATA window
- IATA file – a typical format file, which the PS and PD need to upload to IATA in order to process their claims and receive payment
Every year, IATA publishes a schedule for each month, specifying all the dates mentioned above. In one particular month, IATA provides options for 3 or more IATA windows, in order for companies to optimize their working capital flows and also to reduce financial impact for companies (in terms of interest) if for some reason, one of the deadlines for the month is missed.
Based on these PS and PDs will design, execute and synchronize their monthly Billing cycles to receive settlements as soon as possible every month and have suitable working capital flows. In some cases, companies will divide Billing cycles into 2 or more parts to coincide with the various IATA windows to increase working capital flows
Consider the below hypothetical scenario
Consider a PS XX providing business worth 100 million a month getting billed via IATA Billing
Scenario 1:
XX wants to Bill complete amount for last month (M-1) in the current month. If XX’s Billing cycle and Billing data are synchronized accordingly, XX can receive the 100 million pay-back from IATA earliest by the 15th-17th of the month.(for M-1 Billing, hence a lag of 17 days for the cash flow)
Scenario 2:
XX wants to have cash flow earlier, and therefore divides monthly Billing into 3 parts. The first part will bring in 20 million by the 22nd -24th of the month M. The second part will bring in 60 million by the 29th-End of month M. The third part will bring in remaining 20 million by the 15th-17th of the next month (hence 80 percent Billing for Month M achieved in the same month, while 20 percent Billing received with a lag of 17 days)
Between Scenario 1 and Scenario 2 it is visible that, A can receive 80 million in advance by around 20 days and thereby accumulate relevant interest on the amount or increase working capital flow.
(the scenarios and IATA window date ranges given above are hypothetical. Also for the above scenarios the date ranges will vary based on public holidays, the spacing for the weekends and number of days in the month)
However, these and many other possible scenarios can be pursued by companies following the IATA Billing framework, based on the following:
- Billing platform of the company
- Negotiated terms and time-lines for the receipt of billing data
- Amount of Billing done via IATA interface (if huge sum then a scenario with favorable working capital flow is preferable)
- Business model of the company
- Products and services offered by the company
Salient features:
- For IATA Billing, IATA performs the role of a neutral arbitrator and guarantor for the disbursement of funds. It provides this service to have a common consensus for the Travel and Tourism industry and charges a nominal yearly membership fees for the same
- IATA takes up the responsibility, of consolidating and collecting Billing amounts and disbursing the same to the correct parties. This enables PS and PDs to concentrate on their core business
- PSs and PDs can become suppliers and consumers interchangeably, and submit claims according to IATA. IATA will provide each party with the net payments for the month
- A company may decide to have a certain percent of revenues to get billed via IATA Billing and remaining revenues to be received via its own Billing platform or direct relations/negotiations with suppliers/consumers.
IATA Billing is an option and not a compulsion for entities in the Travel and Tourism industry
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