What is a Travel Agency Debit Memo? [+Infographic]
Debit Memo Madness for Travel Agents
As soon I say the word “debit memo,” your temptation might be to run for cover. I mean no disrespect to debit memos, but they’re just not very sexy, regardless how you spin it. At the 2016 Airline Reporting Corporation (ARC) TravelConnect conference in D.C., I heard a few agency debit memo (ADM) horror stories (i.e. ADMs dating back over four years). Eek. No fun.
But Shelly Younger, Manager of ARC Settlement Services, presented some data that suggests there’s a little sunlight peaking through the dreary fog of travel agency debit memos. Phew. But first things first:
A Debit WHAT?!
An Agency Debit Memo (ADM), at its most basic, is a notice that an airline carrier sends to a travel agency, telling them they've done something wrong and asking that agency to pay a certain amount of money. ARC—a travel agency accreditation organization that provides billing settlement—is the intermediary between the carriers and US-based agencies, so they issue the debit memos to U.S.-based agencies. When it comes to travel agencies outside the US, IATA—an international accreditation organization that also provides billing settlement—sends debit memos to agencies on behalf of the airline carriers.
Debit memos are a tricky beast, so ARC created a Debit Memo Working Group (DMWG) that's comprise of travel agents, airline carriers, industry partners like ASTA and IATA (among others), and Global Distribution Systems (GDSs). (You can read up on ticketing air through GDS here!) Their goal is to make the debit memo process more efficient (aka, make your life way easier).
This is what a debit memo looks like:
When you see one, run! Just kidding, they'll find you so it's best to pay it.
The Real Cost of Debit Memos
According to ARC's data, for every $577 in ticketing value, there is $1 debit memo created in 2016. This is better news compared to 2015, which had a $609 to $1 ratio. That’s just a couple bucks here and there, No biggie right? Wrong. In extreme cases of fraud or chargebacks, ADMs come with a hefty price tag.
This where I begin my precautionary tale about using GDS. The GDS systems are VERY complex, and are not intuitive or user-friendly for those who’ve never used it. There’s a huge learning curve (I’m talking summiting a mountain) when it comes to using GDS. To use it well requires a training and expertise. The tiniest mistakes in booking a ticket can lead to fines (debit memos) . . . and when the average amount of a debit memo from a carrier is $269, those fines begin to add up real quick. To give you an idea of how much an agency makes on tickets (usually through service fees but sometimes commission and net pricing), check out our article on how travel agents make money.
This is why host agencies don’t allow new agents access GDS. Agents are assuming a high risk for a product that already has a low profit margin (most airline tickets don’t earn commission, and in general, those that do earn commission, have lower commissions than just about any other area of travel).
If you're not convinced, read up on ticketing air through GDS here!
There's a lot of data when it comes to debit memos and it can be hard to digest. That's why we've whipped up this pretty infographic for you:
What Kind of Booking Errors Are You Talking About?
Airline carriers have LOTS of reasons to send you debit memos! One of the challenges for agencies is that different carriers have different reason codes—and when ARC began streamlining reason codes, some carriers had 500+ reason codes, making it difficult to identify root causes of ADMs. ARC's DMWG is working hard to streamline and standardize reason codes, whittling the list down to 138 codes.
Of these reasons, GDS booking errors only make up a fraction of those errors. "Fares & Taxes" and "Commissions" were the two most common reasons, making up 44% of total ADMs in 2016 (up to Sept.). But chargebacks—even though they only account for 14% of total ADMs—are still the most costly, making up almost 1/3 of all debit memo charges during the same period1.
Tread carefully, this stuff can get expensive fast.
Good news though! It's not entirely doom and gloom. Listen to our podcast interview with an agent who only books air ($775k worth). His ticketing fees vary from $60-500 CAD and while he does get the occasional debit memo, he swears they're not the bad and considers it a cost of doing business.
But I Already Have a Debit Memo. Now What?
If you use GDS, you will very likely get a debit memo at some point (if you don't have a pretty pile of them already). If you receive a debit memo, the first thing to do is to make sure the charge is valid2.
Yep, it was my bad: Well, if the debit memo is indeed a result of agency error, you're going to have to pony up—even if it was a tiny mistake and the error was unintentional. You'll want to pay that debit memo within 15 days to avoid a $55 service fee from ARC. Paying promptly won't only spare you ARC's service fee, it will also keep you in the good graces of the airline that issued the debit memo. Maintaining that relationship with the airline will make it as peaceable as possible if you do need to contest an ADM down the line.
I received an ADM in error. What do I do? There are a few reasons to contest a debit memo:
- You need more info from the airline regarding their claim.
- You have looked into it and believe the ADM was issued in error.
- You feel the amount of debit memo is in excess of the error and would like to request a reduction.
Disputing a Debit Memo
If you want to contest a debit memo, for US travel agencies, you will contact the airline through ARC's Memo Manager. When you write the note, you'll want to make it short and sweet and stick to the facts—keep it professional.
According to Younger, it's best to "Try to avoid emotion when disputing. Although debit memos can be frustrating, using emotional or negative comments toward the carrier typically do not help support the travel agents claim." This will increase the chances of the airline responding favorably to your request.
If the airline still demands payment, then the agency will need to decide whether to eat the cost or to continue contesting the charge. Younger provided great tips for agencies that want to follow up on the ADM:
“If the agency continues to get the same answer back from the carrier, ask for the debit memo to be reviewed by a manager or possibly bring in another department of the carrier. Example: if the memo is related to how a fare is file, ask for the fare filing team to review the debit memo. Additionally – try not to reply with 'see original dispute.' Find a way to add some additional language to the dispute.”
The reality is that airlines have more leverage in this situation, and if an agent decides not to pay, they'll risk "termination of the agency’s authority to book or ticket on that airline" or, as it's more commonly known, the dreaded pulling of plates. *gasp!*
If a carrier won't budge and an agency still doesn't want to pay, they still have a few options:
Ask for settlement with the airline: This pertains primarily to very large debit memos with costs that are steep enough to make an agency close up shop.
Seek arbitration with airline. ARC has an arbitration program to help settle disputes, which has only been exercised once in 30 years! The tricky thing is that the airline doesn't have go to arbitration if they don't want to.
Seek legal advice. This is the last resort. Here's a few Travel Industry lawyers that can help you out if you're really in a pinch.
Debit Memo Wrap Up
Debit memos are complex. Just like GDS, understanding ADMs can be like learning an encrypted language. ARC's DMWG is making efforts to reduce the number and cost of debit memos to agencies: In 2015, they saved agencies $616,000 in memo costs and are making strides to streamline the number of reason codes over 2017 and 2018.
This is a win-win for airlines and agencies alike. But when it comes to debit memos, progress is slow. (Just to give a little perspective, ARC had to manually review 44,000 debit memos to get the data they need!) But at least there's progress!
Did your agency receive one of the 389,506 debit memos issued so far in 2016?3 Do you have questions about the debit memo madness logic puzzle? Drop a line in the comment below to join in the conversation!