Mark Pestronk
Mark Pestronk

Q: Our agency has a recurring problem involving wholesalers and markups. Here's an example: When we plan a destination wedding, we deal with a wholesaler who has resort space, and we get net group rates that we mark up, along with other wedding arrangements.  This arrangement requires us to sign the wholesaler's standard contract and assume the risk of unsold rooms, which means that we pay for those rooms out of our own pocket when a guest doesn't pay us. Is there a better way to structure this arrangement without revealing the net rates to the clients?

A: Yours is a common dilemma that applies not only to destination weddings but also to group cruise contracts, group hotel contracts and meetings and incentive contracts. You don't want to reveal the net rates that you get from the supplier, but you also don't want to be on the hook to the supplier.

Here are three solutions that I have found to be workable. No single solution works in all cases, but at least one of them should work for you in any given case.

First, you can work with a wholesaler that will agree to have a contract directly with the client at the marked-up rate and then pay you a commission equal to what would have been your markup. The commission would have to be the subject of a confidential side agreement, if you don't want to reveal it.

The difficulty here is that, in my experience, many suppliers decline to do side agreements and insist that the commission be spelled out in the main contract. Many agencies settle for that arrangement as the better of two bad alternatives.

Just be sure that, if you are mentioned in the agreement between the supplier and the client, it is clear that your agency is named as the agent or "agent of record." The words "of record" do not have any legal meaning; they simply imply that, if the client switched travel agencies, the supplier would continue to recognize you for commission purposes.

Second, you can try signing the supplier contract as "ABC Travel as agent for John Smith and Mary Jones" and then seeing whether the supplier will accept such a signature. If so, you are off the hook with the supplier, as long as you had authorization from the client to sign supplier contracts this way.

This arrangement is common in the meetings and incentive business, where the agency starts with a contract with the client organization authorizing the agency to sign contracts in the agency's name as long as the amounts are within the budget. There is no inherent reason why it cannot be extended to all destination weddings and other group arrangements.

Third, you can have an airtight contract with the wedding couple that requires them or their guests to pay you in advance of what you must pay the wholesaler. The contract must explicitly authorize you to cancel all the travel arrangements if payment is late.

This arrangement, which is probably the most common solution to your problem, requires very careful monitoring of payments and deadlines, a task that many agencies apparently find difficult to master. They let the client deadlines slip, and the next thing they know, they are in a loss position.

If you end up in such a position, your first step should be to try to negotiate a debt reduction with the wholesaler or other supplier in return for future business. Wholesalers don't really like trying to collect debts from agencies, so if you can offer an alternative, it may well be accepted.
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