Show me the money?

Should a hotelier seek compensation if a customer rings to cancel a booking at an hour's notice because one of their party has been killed in a car crash?

Two hours before dinner on the first night of a three-night New Year package, Augill Castle Country House in Cumbria had such a telephone call - four of its guests were not coming. The bottom line, however, was that the hotel - which has just six rooms - had turned away dozens of other enquiries, which meant the cancelled party accounted for 25% of New Year revenue.

Augill Castle's dilemma is an extreme case but it highlights a common problem. No-shows are one thing, but a cancellation due to circumstances nobody could have foreseen is quite another. The simplest way to guarantee against lost revenue in the case of a cancellation or no-show is to take details of a credit card at the time of booking. If the customer does not show, it is easy to just process the card and collect. But is it so easy when you get a last-minute call from a customer whose predicament is genuine? Worse still, a regular guest?

Martin Couchman, deputy chief executive of the British Hospitality Association, points out: "That is where insurance really comes into its own, to cushion a difficult situation."

Binding contract

Some hotels offer insurance to customers at the time of booking, but uptake is low. That may be because hoteliers do not always make their cancellation policies clear. But a booking is a binding contract - it's worth drawing that to the attention of prospective customers from the start. If they are left in no doubt that they are liable for a cancellation charge if they don't show, for whatever reason, they may be forced to think about taking insurance or to be more diligent about phoning if they have to cancel.

Selling insurance to customers is not as onerous as it might sound. A simple proposal form sent out with confirmation is all the administration required. If the customer takes it up - and it can cost as little as £7 to insure an adult for a weekend break - the hotelier can get commission of up to 16%.

So how much can a hotel or restaurant charge in the event of a no-show, and which elements of a cancelled booking cannot be charged for? Although insurers will pay out between 66% and 100% for cancelled hotel bookings, the law remains predictably vague.

The BHA has written guidelines, which it shares with the English Tourism Council, their basic principle being to allow for the recovery of lost profit. In theory, that means deducting from the night's accommodation charge the cost of servicing the room, and from a pre-booked meal, the cost of unused raw materials. In practice, many hotels charge the full cost of one night's accommodation.

Some city hotels will assume that there will be a certain level of no-shows and thus overbook, much as airlines often do. Other high-volume operators such as Travel Inn and Premier Lodge take credit-card details to confirm a booking and give customers until late afternoon on the day of arrival to cancel. If the customer has not cancelled by then and doesn't show up, the full rate for that night's accommodation is charged to their card. The room, after all, remains at their disposal.

That's fair game. But for small, independent hotels, a judgement has to be made about the bad feeling which such tactics might cause.

Ian Forrester, proprietor of Great North Lodges of Aviemore, has turned last-minute cancellations into a marketing tool. Previous guests at his small hotel in Aviemore and his self-catering lodges can join his stand-by club for a one-off fee of £15. If a booking cancels at short notice, he rings members and offers them the accommodation at a 25% discount. He says: "As well as filling unexpected space, it fills beds at slack times - and it's a great way of continuing to make existing customers feel valued."

For restaurants, no-shows are even more of a headache. What value can be put on an unoccupied table when there is no way of knowing what the erstwhile customers would have eaten had they turned up? Unless the meal booked was a set one, there is probably little point in holding credit-card details as security.

Ian McKerracher, chief executive of the Restaurant Association, suggests that a more pragmatic approach for restaurants is to take customers' contact telephone numbers. "Telephoning a booking a day or so in advance to reconfirm gives them the chance to back out if they want to," he says. "Whatever the excuse, at least you get a fighting chance to resell the table."

This policy works for David Barnard, who runs the Crab & Lobster restaurant and its sister business, the nine-bedroom Crab Manor, near Thirsk in North Yorkshire. The two businesses used to lose between £25,000 and £30,000 through no-shows each year. Now that figure is negligible.

During busy times at the restaurant, Barnard keeps no-shows to a minimum by ringing around all the reservations to reconfirm 24 hours in advance. A similarly firm but fair policy has paid off at the hotel. As Barnard says: "We used to have a 48-hour cancellation policy but that wasn't enough. People were taking advantage. Now we have a seven-day policy and we take full contact details and credit-card numbers to back that up. And for special occasions - such as Valentine's Day, Easter, Christmas - we ask for payment in advance."

But he says that while there is a need to be stricter with residential than restaurant bookings, he doesn't seek to hold his customers to ransom. If they have genuine reasons for cancelling late, he understands. "You have to try to remain user-friendly," he concedes.

So, do hotels have an advantage over restaurants in recovering lost revenue? Couchman warns that things might not be so simple. "You can make a charge to a credit card," he notes, "but the customer can still dispute it and the card company will most likely come down on their side."

McKerracher points out that things could be changing, however. He says that, in the USA, credit-card companies do support businesses in cases of dispute. "The card companies do realise the problem," he says, "and discussions are under way over here."

But, for the time being, charges made without a signed credit-card slip are easily disputed. And if that happens, there is little alternative but to go to court, with no guarantee of getting your money even if you win. Few bother.

Couchman would like to see more action. "People do not turn up for all sorts of reasons, many of them genuine," he says, "but a booking is still a business transaction on both sides. We should all do more to enforce that."

So what was the outcome at Augill Castle? As co-owner with my wife, Wendy, I can say that very effort was made to resell at least part of the booking, but it was too late. "We invoiced the party two-thirds of the total cost and offered them a complimentary two-night break. We have also tightened up our cancellation policy and will be requesting payment up-front for events such as Christmas and New Year. No doubt the whole episode will leave a bitter taste in somebody's mouth.

But business is business, palatable or not.

TIPS TO AVOID BEING CAUGHT OUT

• Take credit-card details at the time of booking, or a deposit equal to the first night's stay

• Check the card is authorised and valid

• Make sure your guests are fully aware of your written cancellation policy

• For a special event or package, ask for full payment before arrival

• Suggest travel insurance to impress on customers that they are making a contract

• Keep details of enquirers you cannot accommodate - you never know when you might need them.

CONTACTS

BHA 020 7404 7744

Restaurant Association 020 7831 8727

Simon Bennett is a journalist and co-owner of Augill Castle, near Kirkby Stephen, Cumbria

Caterer would like to hear views from readers on how to deal with no-shows. Letters should be addressed to the editor, Forbes Mutch.