The global event industry continues to evolve and is directly influenced by current economic environments. In recent years, we have seen world economies impacted and crippled by catastrophic events such as 9/11, extreme weather, virus outbreaks, the housing market collapse and destabilization of currencies.
Based on these events, there always seems to be an unfavorable impact to the meeting industry supply chain based on organizational “reactional” fear, reputational risk assessments and force majeure actions. As a result, companies establish an internal stakeholder team to develop contingency plans based on several “what if” scenarios. This team generally includes risk management, legal, compliance, senior executives and the meeting and event department. Although the contingency planning trend has matured within organizations, one critical task is often over-looked: evaluating financial and risk liabilities related to safeguarding event deposits.
Over the past decade organizations have experienced pressure to pay higher contractual deposit percentages from industry suppliers that are anticipating high volume spend including hotels, cruise lines and DMCs. This paradigm shift is a direct result of event hosts not fulfilling contractual promises of payment terms during turbulent economic times. Although the economic outlook today is stable, the “pressures” will remain based on historical market cycles, and the fear of future global economic and environmental “unknowns.”
I have run into many event professional peers who are paying these deposits and who frequently ask the same questions, “what is actually happening with the deposit and why do I have to pay these exorbitant amounts so far ahead of the program dates?” We are aware that food isn’t purchased until closer to the event and hotel rooms are not built based on the specifications of the contract. Bottom-line, these deposits are a guarantee to the supplier that payment will be secured and paid on time based on the mutually signed contractual agreement. Unfortunately, if a catastrophic or major event occurs within the planning or execution cycle, the supplier ultimately has the leverage (and money) if there is a request to renegotiate terms.
Although paying higher deposit schedules has become an industry “acceptable” practice, it is important to understand the risks involved especially if the unthinkable happens, the vendor goes out of business during the planning process or on-program. Believe it or not, this scenario happens especially during challenging economic times generally with small to medium size supplier companies.
Recently, an industry friend experienced first-hand this scenario. He is an event veteran with over two decades of experience and has several due diligence and RFP protocols in place when identifying program support vendors. He had contracted and planned an incentive trip to Bermuda, and while traveling to the program he received a phone call informing him the DMC he had hired was no longer in business. Yes, this really happened! As a consummate professional, he was able to regroup, assess the situation, pay the sub-contractors and venues directly, and hire the existing program coordinator as a freelance consultant to execute the program logistics.
Although the program concluded and the planner received rave reviews from attendees, the organization ended up paying double to sub-contractors and venues because the deposits paid in advance were not applied to his program. Grant Snider, founder of Meeting Escrow Inc. and former co-owner of JPdL Destination Management Canada, explains that “if advance payments and deposits are commingled (mixed) in the same bank account with suppliers’ general operating funds, they are at risk when adverse conditions arise” which is what ended up happening in this scenario.
In my role as a small business owner, establishing trust and transparency is imperative, especially with the handling of client finances, to ensure a long-standing relationship. Partnering with Meeting Escrow has allowed my organization to fully disclose program deposit and payment transactions through a secured portal. The transactional history is available to program administrators 24/7 for reconciliation and auditing purposes and all client funds are held in separate in-trust accounts. As a result of using Meeting Escrow, suppliers recognize the security of funds, achieve the required guarantees, and can offer favorable payment terms knowing they will be paid on time.
About Meeting Escrow, Inc. www.meetingescrow.com
Meeting Escrow is an award-winning innovative company which offers a complete range of financial and risk management solutions for the Meetings Industry worldwide. From deposit protection and foreign currency management to secure payment and meetings budget account management, they bring a wealth of industry experience combined with innovative solutions to greatly reduce risk and simplify operations for your organization. You can find Meeting Escrow @meetingescrow and Grant @snider_grant on Twitter and LinkedIn.