cash or credit (the city ledger)

Check-In Check-Out: Managing Hotel Operations, 9eGary Vallen, Jerome Vallen

© 2013 by Pearson Higher Education, IncUpper Saddle River, New Jersey 07458 • All Rights Reserved

CASH OR CREDIT (THE CITY LEDGER)Chapter Eleven

PowerPoints developed byBharath M. Josiam, Ph. D.

Professor, Hospitality ManagementUniversity of North Texas, Denton, TX, USA

AndEdited by Gary K. Vallen, Ed. D.

Professor, School of Hotel and Restaurant ManagementNorthern Arizona University, Flagstaff, AZ, USA



Objectives of Chapter 11• Understand the nature of cash transactions at the

front desk• An ability to reconcile a cashier’s drawer• A practical knowledge of risks associated with

accepting cash and cash equivalents• Understand the risks and procedures related to

accepting a personal or company check• An awareness of risks associated with accepting

foreign currency• Understand the risks and procedures related to

accepting Traveler’s Checks



Objectives of Chapter 11• Understanding the role of credit in business• Understanding Credit Card systems• Understanding the role of management in

formulating and implementing credit policies and procedures

• Understanding terms and jargon pertinent to credit issues



Handling Cash Transactions• Cash Paid Outs

– When cash is taken out of the F.O. cash and “paid out” to someone (Employee, Guest, Vendor, Manager etc.,)

– Tips to employees• Most common form of cash “paid out” at FO

– Guest adds the tip amount and signs the check.– Tip is paid out on the same day to the employee– Employee signs the “Cash Advance Voucher” for this

• Float Losses– Hotel gets money later, pays employee up-front!

• Merchant discount fee– Hotel has to pay fee to VISA or AMEX, but does not reduce tip!

• Non-collectible accounts– If the bill is not paid, hotel cannot recover tip already paid out!

• Another look at the employee tips (Exhibit 11-1)– All the above can end up costing the hotel a lot of money!



Handling Cash Transactions

• Cash Paid Outs– Cash Loans

• A loan given to a guest from FO cash• Common earlier for taxi fare, similar small amounts

– Not a good idea for large amounts– Very rare these days with ATMs and Credit Cards

• Third party sources of cash– Encourage guests to use ATMs, get a loan on their credit

card, or use wire services like Western Union • Automatic Teller Machines(ATM’S)

– Dispense cash world-wide in local currencies• ATMS in Hotel Lobbies

– Source of revenue for hotel as ATM company pays a fee– Encourages guests to spend more money in the hotel!



Handling Cash Transactions

– Paid outs to concessionaries• Hotel pays the Dry-Cleaner or Hairdresser and charges

it to guest account as a “Paid Out”• Guest pays on departure

– Refunds at Check-out• If the guest paid a large advance up-front and has

money left over, they are refunded as a “paid out”– Have a limit of $100 or so in cash to avoid fraud!



Handling Cash Transactions• Cash Receipts at the FO

• When cash is received by the FO as payment– Cash Receipts at Check-out

• When guest pays their bill in cash on departure– Rare these days, with direct billing and credit card use

– Cash Receipts “On-Account”• When a guest makes a partial payment against their final bill

– May be asked to pay as a credit-control procedure– Guest may want to pay to avoid carrying cash – To avoid delay due to anticipated very early check-out etc.,

– Cash Receipts at Check-in• “Cash-only” guests may be asked to pay in-full, in cash, up-front• All departments should be notified about “cash-only” status

– Reservation Deposit Receipts• When a guest pays cash in advance at the point of reservation• Normally transferred to City Ledger and re-transferred to Guest

Folio on arrival.



Handling Cash Transactions• House Receipts and Expenses

– Assorted City and General Ledger Receipts• In smaller properties all incoming cash is funneled through the FO

cash system– Credit “Miscellaneous Income” Account and Debit “Cash”– Examples: Newspaper/stamp sales, dining room income etc.,

– Assorted House Paid Outs• When cash is disbursed from the FO for the expenses of the hotel

(“house”)– The bell boy buys 10 lbs of flour from the nearby supermarket!

• The Imprest Petty Cash Fund– A fund maintained by the FO Cashier for small house expenses like

stamps, local produce etc.,» It is reconciled and “bought out” by Accounting Department

periodically» Petty Cash Vouchers are used to support transactions

(Exhibit 11-3)



The Cashier’s Daily Report

• Preparing the Cashier’s Report• Exhibits 11-5 &11-6

– The Cashier’s Bank• A permanent supply of cash received by the FO

cashier for daily use– Ranges from $250 to $10,000– Use the minimum needed and vary on as-needed basis– Audit regularly to prevent abuse and poor accounting

practices– Use individual banks for individual cashiers to fix

responsibility– Cover all cash handling employees with a “bond”

(Insurance Policy)



The Cashier’s Daily Report

– Net Receipts• The difference between money taken in and paid out

Total Receipts – Total Payments = Net Receipts– Over or Short

• Difference between “What should be” and “What is”– “What should be” = Cash according to accounts– “What is” = Actual cash in dollars and cents in the cash drawer– “Over” = More money in cash drawer than should be– “Short” = Less money in cash drawer than should be

• Differences due to errors, over/under payments, fraud– The Turn-in

• The cashier turns in the actual cash, along with the Cashiers Report, accounting for “over” and “short”

• The cashier turns in the actual cash and an auditor does the accounts



The Cashier’s Daily Report• The Income Audit

• A checking of accounts done every morning to verify accuracy of cash transactions and to prepare bank deposit for the day

– Due Bank• When more money is paid out than comes in and the cashier

uses his “bank” for that payment– Paying off (Refunding) the due bank

• The bank has to be re-built to the stipulated amount by giving cash back to the cashier

– Paying off (Refunding) House Vouchers• The accounting departments “buys out” the house petty cash

vouchers with real cash, so that the cash drawer is accurate– Tour Package Coupons

• Coupons used by members of tour groups to “pay” for meals etc– Must be accounted for like regular cash



Other Related Issues– Foreign Currency (Exhibit 11-7)

• Normally not accepted in US hotels– Canadian $ may be accepted close to Canadian border– Online reservation systems generally show the rates to the

potential guests in the currency of their choices• Some hotels provide money-changing facilities at FO

– Rarer in US than in most other countries– In India, even small hotels change currency at FO– Currency exchange restricted to “major” currencies– Can be profitable for hotel, but has its own risks!– USA hotels refer customers to specialized money changers

• The EMU “euro”– Common currency for 12 European countries– Makes life less complicated for travelers to and from Europe

• In general, credit card and ATM usage has reduced currency exchange world-wide



Credit and The City Ledger

• Credit Cards– Brief history of the credit cards

• Started in the USA in 1915• Became big in 1950 with the founding of Diners Club• American Express (AMEX) founded in 1958• BankAmericard in 1960, becoming VISA later• MasterCard in 1970• Hotel chains started issuing their own credit cards, but

dropped the idea later with increasing acceptance of general cards



Credit and The City Ledger• Brief History of the Credit Cards (Continued)

– Partners with lodging• Four major cards (Visa, master-Card, AmEx, and Discover)• Each major card supports a different need

– Visa’s contribution is a national educational program concentrating on reservations and no-shows

– MasterCard supports the Education Institute of the American Hotel & Lodging Association (AH&LA)

» MasterCard’s major trust is developing service skills at the front desk

– American Express partners with the AH&LA in legislative affairs and contributes regularly to the American Hotel Foundation

– Discover Card’s national contribution is yet unclear, but it is forming strong single-company relationships

• All credit-card companies participate in the lodging industry’s regional and national meetings



Credit and The City Ledger• Credit Cards (Exhibit 11-8)

– Kinds of credit cards• Bank Cards (Exhibit 11-9)

– Issued by banks, VISA & MasterCard– Customers get credit and can pay in monthly installments with interest– Banks make money from annual fees, merchant fees, interest– Customers get convenience, “float” and flexibility in spending

• Travel and Entertainment Cards (T & Es)– Issued by AMEX, Diners Club with strict credit checks– No credit, bill is to be paid in full each month– AMEX makes money by card fees and merchant fees (Both High!)

» Some merchants do not accept AMEX as a result• Private Label Cards

– Gas company, Department stores etc issuing their own cards– Due to limited use, they are slowly disappearing away!

• Co-branded or Affinity Cards– VISA or MasterCard affiliated to an organization like UNT

» A small percentage goes to the organization



Credit and The City Ledger• Credit Cards

– How the system works• Customers get convenience, float, credit, security• Merchants get additional business, less cash handling costs and

headaches• Banks get annual fees and interest from customers, and fees from

merchants (1% to 5%) • Other Cards

– Debit Cards• Transfer funds instantly from customers bank account

– No float for customer, less fees for merchants– Smart Cards

• Credit cards with memory chips that can store other information– ID, medical info, insurance info etc– Slowly becoming more popular



Credit and The City Ledger

• Other City Ledger Categories– Master Accounts

• Accumulate charges for groups• Four common errors that irritate meeting planners

– Split billing– Unauthorized signatures– The sequence of posting– Comp rooms

– Groups, Packages, and Company Sponsored Functions• Split folios

– Major items such as VIP rooms and group meals are posted to the A folio, the master account, for which the entity pays

– Personal incidentals are charged to B folios and paid as the individual guests check-out (Exhibit 11-13)



Credit and The City Ledger• Other City Ledger Categories

– Individual City-Leger Receivables• Travel Agencies (Exhibit 11-14)

– A travel agency can become an account receivable in the city ledger when guest pays the first night’s room charge with the travel agency’s coupon

• Miscellaneous Charge Order (MCO)– A standardized voucher issued by an airline, authorizing the holder to

utilize hotel services– Hotel collects the MCO from the guests and bills the airlines

• Banquet Charges– An open account created by a catered party in the hotel, that a guest pays

after-the-fact» Credit Cards are increasingly replacing this

• Late Charges– Charges that appear on the folio after the guest has checked out– May be “written off” as un-collectible if amount is to small to pursue



Credit and The City Ledger– Individual City-Leger Receivables (Continued)

• Delinquent Accounts– Accounts that have not been paid in a long time– May be transferred to “Bad Debts” account and “written off” if found to be

uncollectible• Executive Accounts

– Personal account of Managers in the hotel» May receive discounts for hotel services» Need to distinguish “personal” and official entertainment

• Due bills or Trade Advertising Contracts or Trade-outs or Reciprocal Trade Agreements

– Hotels trade their room nights for other services like newspaper or TV advertising– The voucher issued by the hotel is often traded like real money!

– The guests presents the Due Bill on check-in for payment

• Frequent-Guest Programs (Loyalty Programs)– Hotel company is billed for the room rate on the A folio– Guest is billed for other personal charges on B folio



Managing Cash and Credit• Managing Cash

– Counterfeit or Fake Currency• It is a very real problem• Hotels are targets as FO is busy and easy to cheat• Important to train cashiers to detect fake currency• Can buy devices that detect fake bills

• Managing Check– Check Cashing Safeguards

• Do not accept checks to start with, especially for getting cash!– Most people have credit cards these days

• Use a check clearing service like Tele-check– Well worth the fees that they will charge you!

• Train employees in detecting fraudulent checks– Traveler’s Checks

• Issued by AMEX and other issuers, As good as cash• Cashed with a verifying signature• Train employees in proper procedures, fraud detection• Be careful about Canadian/Australian/ other dollars!• Less popular now with increasing ATM, credit card use.



Managing Cash and Credit

• Managing Credit– Cost-Benefit Decision

• If you do not extend credit you will certainly have no losses due to “bad debts”, skippers etc

• However, you will also miss out on good business that was turned or scared away by your rigid credit policies

– Components of Credit Management • Having reasonable credit policies that balance business

needs with financial risks• Training F.O. staff in credit policies and procedures• Continually monitoring credit standing of all accounts• Following up promptly on accounts due to the hotel



Managing Cash and Credit

• Managing Credit– The Management Function

• Extending Credit– Lees of an issue with growing use of credit cards– Shift risk to credit card company

» Worth credit card fees to reduce credit losses » Ask guests without credit cards or “suspicious” guests to

pay cash in advance• Managing the Specifics

– Chargebacks» When the credit card company refuses to pay the bill» The guest refuses to pay (No-show fees etc.,)» The hotel did not follow card company procedures

– Minimizing Chargebacks» Communicating charges/fees clearly to the guest» Avoiding “late charges” by better training and good systems» Training employees in following correct procedures



Objectives of Chapter 11• Understand the nature of cash transactions at the

front desk• An ability to reconcile a cashier’s drawer• A practical knowledge of risks associated with

accepting cash and cash equivalents• Understand the risks and procedures related to

accepting a personal or company check• An awareness of risks associated with accepting

foreign currency• Understand the risks and procedures related to

accepting Traveler’s Checks



Objectives of Chapter 11

• Understanding the role of credit in business• Understanding Credit Card systems• Understanding the role of management in

formulating and implementing credit policies and procedures

• Understanding terms and jargon pertinent to credit issues

cash or credit (the city ledger)

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