Guest Accounting in Front Office

Importance of Guest Accounting

An account is a record of a business transaction and on this document, financial data are recorded and summarized.

The term guest accounting from a hotel point of view means knowledge of what is to be received from the guest and what is paid by the guest. To have updated information on the same, it is important that at all times during the guest cycle, an efficient system is used. Various systems such as manual, semi-automatic, or fully automatic systems may be used depending on the size and type of the hotel.

The objective of the guest accounting procedures is as follows:

• To maintain accurate and up-to-date guest accounts.
  
• To ensure that payment is received promptly and in full.
  
• To provide management with accurate and up-to-date financial reports.

Guest Bill

The guest bill is updated immediately as it is received from the various departments/sales outlets. It is very important to maintain and record all up-to-the-minute details of the accounts of the guest. A person who checks into a hotel is usually entitled to credit facilities for his purchases of accommodation, food and beverages, telephone, and other facilities. The following picture shows the sources of the guest bill.

Guest Bill Communication Methods

Speed and accuracy in preparing and maintaining a guest account are very important to avoid any late charges. This is possible only when there is a very effective communication system between the billing section and the sales outlet. Depending upon the type of hotel the communication methods can be:

• Manual: In small hotels, a bellboy or a waiter, or a person from the department where a sale has taken place rushes to the billing counter for entry into the guest folio.
  
  
• Mechanical: Some medium or large-sized hotels have pneumatic tubes (pressure suction tubes) for sending signed vouchers of the guest from the department or outlet selling the service or commodity to the billing counter.
  
  
• Fully Automatic System: From the point of sale terminal (POS), the entry is made to the centralized computer server where the guest folio is updated and stored. This method is very efficient and convenient and is widely used today in almost all medium-sized and large hotels.

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Process of Guest Accounting

The process of guest accounting is based on the following concepts:

• Financial transaction, creation, and maintenance of accurate accounting details.
  
• Making necessary documents and recording a transaction on relevant documents.
  
• Ensuring internal control, checking and establishing the accuracy of the recorded transaction.
  
• Settlement of the accounts, which may be by cash or credit payment.

Types of Financial Transaction

Financial transactions are generally of three types:

• Accounts Receivable: When a guest goes to the bar or restaurant (and consumes drinks or food) or avails laundry facilities, makes telephone calls, etc, and does not pay cash but signs a voucher (an undertaking that he agrees to the specified amount and shall pay later) and also the room charges, etc. are all examples of financial transaction where an amount is to be received by the hotel from the guest (guest has to pay) and these are called ‘accounts receivable for the hotel. Any ‘returned checks and chargebacks’ (maybe his previous skipper account) etc. are also examples of the same.
  
  
• Accounts Payable: These are those transactions where the guest pays the hotel against his outstanding; for example, he pays against his bill amount in part or full. Also, this type of transaction would include any allowances or discounts given by the hotel to guests and a transfer amount, etc. Such transactions are not very common usually. Such financial transactions will reduce the outstanding balance to be paid by the guest.
  
  
• Cash Transaction: Cash Transaction means that the guest pays cash to the hotel. For example, when a guest goes to a bar or restaurant and is served drinks or food and then presented a check for the same, he pays cash for that check. Such transactions neither increase nor decrease the guest’s outstanding balance.

Preparing of Documents

Documents are those where the financial transactions of the guests are recorded, as it is humanly not possible to always remember all the transactions made by all the guests. Various documents are generated during the process of guest accounting. The types of documents generated also depend upon the system used, but some documents will always be there no matter what system is followed.

• Vouchers: Vouchers are also called checks. A document to detail transactions at a point of sale and meant to transmit transactional information to the front office of guest charges which need posting. When a guest consumes some services/facilities/goods of the hotel from any of its departments or sections, the concerned department prepares the voucher.
  
  This is a support document for the financial transaction. When the guest signs the voucher / check for the number of goods/services consumed by him the voucher is sent to the front office bill clerk to be posted to the guest account card/guest folio. Commonly used vouchers in hotels are cash vouchers, charge vouchers, transfer vouchers, allowance vouchers, check-out vouchers, credit card vouchers, paid-out vouchers, etc.
  
  
• Folios: A folio is a document that is initiated at the time of arrival of the guest normally and all guest transactions are recorded on it, which increases or decreases the balance of the account. This is also called a ‘guest accounts card’ and is prepared for every guest and room. In some hotels, it is also called a guest weekly bill.
  
  All accounts receivable, payable, and paid-out transactions are entered in this document. The information about the value, time and date, and the place of financial transaction is communicated by the concerned section/department through a signed voucher/check). Following are the different types of folios that are used by hotels.
  • Individual guest account card or folio: Maintained to record transactions made by an individual or independent guest with the hotel. Also called Guest Folio.
    
    
  • Group folio: One folio for the whole group and this folio is required for recording all the transactions made by the group (which are part of the package of the group). This is also called ‘Master Folio’.
    
    
  • Semi-permanent or Non-guest folio: In this folio the credit financial transaction made by non-resident guests with the hotel are recorded. Also known as ‘city account card’ or ‘non-resident guest account card’.
    
    
  • Employee folio: As the name suggests the financial transactions (if any) made by the employees are recorded in this folio. These folios help in calculating incentives for the employees.
    
    
  • Permanent / Companies / Airlines / Agents folio: Separate folios are maintained for all the companies, agencies, and organizations with whom the hotel has permanent billing arrangements.

• Postings: Posting is the process of recording the transaction on the folio. Posting will result in a new balance for the account. The posting may be done by handwriting method (manually) by a machine such as NCR (semi-automatic system) or through computers (fully automatic system).
  
  
• VTL: VTL (Visitors’ Tabular Ledger) is also called the ‘tab’ by some hotels. It is another document used in small hotels. It shows the debits and credits activities of the guest account.
  
  
• Account Aging Report: A document telling and supervising the receivable account from the guest which has aged over a specific period. Account aging refers to the method(s) of tracking past-due accounts based on the dates the charges were incurred. To illustrate, credit card payment accounts usually have ages of a maximum of one month.
  
  However, some other non-guest accounts (eg. late charges, disputed bills, bad cheques, and skippers accounts) might have ages measured in months and even years. Below, is the terminology associated with each account age:
  • Less than 30 days Current Accounts
    
  • 30 to 90 days Overdue Accounts
    
  • Older than 90 days Delinquent Accounts

• Sales Journals: A document that records cash sales of a department
  
  
• Cash Receipts: A document issued by the cashier to the guest when the cashier receives payment from the guest and then entered in the cash register receipt ledger

Checking and Ensuring Accuracy

This stage of the accounting process is also called ‘auditing’. Usually, auditing is done during the night by Night Auditor when the business is relatively slow hence the process is called Night Auditing. This stage of the process is important to ensure the accuracy of accounts balance so that if there is any discrepancy between outstanding folio balances and departmental balances then the same may be sorted out without any delay. For an account to be correct the total outstanding guest balance must be equal to the sum of the respective department’s charged sale.

Settlement of Account

It is a very important phase of the guest accounting process. This phase is involved in a major activity of ‘zeroing out’ the folio balance i.e. the outstanding debit balance is neutralized by the settlement of the credit balance. The settlement can be either by cash payment by the guest or by credit card charge or by transferring the account to a company account. In the last two cases, the balance account is transferred to the city ledger account.

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Credit Control

The term credit control refers to the various measures taken by a hotel to ensure that guests settle their account in full either themselves or someone else on their behalf (which may be a credit card company, airlines, a corporate office, or any other agency or person) and does that within a specified period. Various steps that will help in credit control are to be taken at various stages, by various personnel of the hotel.

Objectives of Credit Control Measures

• To avoid and prevent loss due to walk-outs. Here the term walk-out includes all those guests who knowingly or unknowingly or by mistake leave the hotel without paying/ settling their bills.
  
  
• To reduce the problems of inconvenience which the cashier (who will not have verification of bills), the housekeeper (who won’t know the room status), and the management (who may decide to start legal proceedings), etc. will face because of a walk-out guest.
  
  
• To prevent late settlement of guests’ accounts. The delay in payment can cause cashflow problems for the hotel and if there are many such cases the hotel may find itself in a difficult situation to operate, and bad debts may increase.
  
  
• To avoid guest dissatisfaction, embarrassment and annoyance at the check-out time when all of a sudden a departure guest is informed that the hotel does not accept any particular company’s credit and or that the hotel does not accept that particular currency in which he wishes to pay or his total bill is above the credit limit of the credit card company and the company refuses to approve a higher limit.

Common Causes for Unpaid Account Balance

• The guest is not explained clearly which credit cards are accepted and which are the acceptable currencies, and if the bill exceeds the credit limit then he will have to pay the balance in cash.
  
  
• Communication gap between credit department and cashier- for example, failure of the credit department in timely communication to a cashier that the bill amount of guest has exceeded the limit.
  
  
• Negligence and carelessness for example ignoring to look at the blacklist. To avoid such problems, the guests must be given clear instructions at the time of check-in, timely notification of the exceeding of credit limit, reference to black list frequently, and make sure that the guests who come with company credit facility and other such credit facilities such as airlines, and travel agents, etc, understand that they have to sign their billing statement, before leaving the hotel at checkout time, and finally, all the concerned departments and sections, etc must follow the credit policy of the hotel very strictly and religiously.

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Cash Control

Like credit control cash control in a hotel is also of great importance. Cash control involves all the transactions which the guest makes in cash with various sales sections of the hotel are recorded immediately and cash collected.

All the cash is kept properly under lock and key and the supervision of the cashier. The petty cash is also controlled and a proper check on that is made since hotels don’t encourage credit sales, and for proper cash sales, cash control becomes all the more important for a hotel.

Usually, cash sales should be encouraged in areas such as health clubs, swimming pools, car parking, etc. Payment in hard currency, traveler’s cheques, and bank drafts are considered to be cash sales. Whenever a guest pays cash the cashier must make a cash receipt and hand it over to the guest. The cash collected every day must be sent to the bank for deposit.