You may have noticed something new with the Merang TravelOffice system this week. We successfully launched the new version of the Merang TravelOffice system over the past weekend, and so far the feedback has been very positive. We’re very excited with the new changes as we are certain they will help you produce invoices faster, that are more professional, and that will help you manage your business better.

Apart from making the system compatible with other browsers (e.g. Firefox), we have introduced a multitude of new features and changes. The following is just a quick summary of some of the new features and changes. Over the next few weeks, and months we will be posting more details of each of the changes and how to use them, so check back often.

I. SYSTEM PROFILES:
1. Invoice Profiles: You can now specify payment titles by product type, select to display supplier names on invoices, and select to display the signature line when insurance is declined.
2. Agent Profile: You can now allow agents to create suppliers, record supplier payments, and ‘complete’ invoices for their own invoices. You can also allow/remove manager’s access to a limited version of the back-office.
3. Product Inventory: You can now create an inventory of standard products that can be quickly retrieving from an invoice, automatically filling out the relevant fields.

II. INVOICE MODULE:
1. Enhanced Search Feature: You can now search for invoices based on a number of other fields including agent, destination, invoice status, supplier, passenger last name, etc.
2. Invoice Remarks: You can add remarks to an invoice that will not display on the customer’s copy of the invoice.
3. Enhanced Product Fields: You can now select the product type, and customized fields will appear for each type. Also payment titles will change based on the product type.
4. Supplier Commission Rates: Supplier commission rates are displayed (if entered in the supplier profile) when you are recording the net cost.
5. “Card Payment (Supplier)”: When adding a customer payment received with this method of payment, the corresponding supplier payment is automatically created (previously, you had to do this separately).
6. Customer and Agency Invoices: We have enhanced the customer and agency versions of the invoices to make them more professional and customized based on the product types.
7. PDF Invoices and Vouchers: You can now generate the invoices and vouchers (for tour companies) as a PDF document that can be saved and e-mailed to customers.

III. BACK-OFFICE MODULE:
1. Updated Dashboard: The back-office dashboard has been reorganized to make it easier to understand.
2. Sales Activity Reports: The report selection has been reorganized. We added a column for number of passengers in the ‘Sales Report by Supplier’. Also, we added two new reports; ‘Sales Report by Invoice’ and ‘Sales Report by Product Type’.
3. Invoice Register: You can now generate a detailed report of all invoices in the system including many pertinent fields. We recommend you generate this report periodically and save it (in a spreadsheet) as a backup of all your invoices in the system.
4. Customer Profile – Assigned Agent: We now assign agents to every customer profile. This is done automatically from the invoice or can be done through the customer profiles section in the back-office. A report of customer profiles can be generated, including the assigned agent.

We sincerely hope that you will find these new features useful. Again, stay tuned as we post more specific details of each of these features over the coming weeks and months, as well as tips on using the system faster and better.

Answer:
Let’s look at this by going through an example:

Example: Assume you had a booking with Air Canada (AC) with a net cost of $600. You paid Air Canada by cheque (or company credit card etc.). The customer then cancelled the booking and instead of receiving a refund back from AC, they gave you a credit of $600.

In this case, on the invoice (let’s call it invoice 76001), you would change the supplier net cost to 0 since the booking was cancelled. In the Supplier Payment section, you would leave the $600 already paid to AC (since you are not getting a refund). So the remaining balance due now shows as -$600 (i.e. they owe you).

Now, let’s say a month or two later, you do another booking with AC which has a net cost of $1000, and you want to use the $600 credit owing to you from AC on this booking and you paid AC a cheque of $400 for the remaining. To record this, create the new invoice (76002) with a net cost of $1000. In the Supplier Payment section, you would record the payment (method: Cash/Company Cheque) of $400 that you made. You would also record a second payment (Method: Applied Supplier Credit) for $600. So the remaining balance due will be 0.

One last thing you must do (which is the important part that people miss) is to go back to invoice 76001 (which still has a remaining balance due from supplier of -$600) and you need to record a payment (Method: Applied Supplier Credit) for -$600 (notice the negative sign). This will bring the remaining balance due on this invoice also down to 0.

So basically, the two “Applied Supplier Credit” payment under both invoices 76001 (-$600) and 76002 ($600) net each other out.

For our travel agency customers in BC and Ontario, the HST (combined GST and PST) will become a reality from July 1, 2010, which will affect the tax on commission (for travel services that are not zero-rated). Unfortunately, this will mean that agents will now need to be ‘tax specialists’ as well as ‘travel specialists’ when booking and pricing travel. While there is some information available online, it is very confusing. The following are some external sites we found that we thought you might find useful in trying to decifer how/whether to apply the HST on commission for passenger travel services, or on service fees (please note – the information provided in these external sites are for your reference only. We have not validated it. You should also check with your accountant/tax advisor on the application of the HST).

• http://travelindustrytoday.com/web/index.php?option=com_k2&view=item&id=10451:open-forum-on-hst-acta-fills-in-the-blanks&Itemid=14
• http://www.artacanada.ca/hst
• http://www.rev.gov.on.ca/en/taxchange/
• http://hst.blog.gov.bc.ca/

At the time of writing this, the Canada Revenue Agency (CRA) has not yet updated their guide on GST/HST for the Travel Industry, which was last updated in 2008 and does not refer to HST introduced in BC and Ontario. We will keep monitoring try to add more resources to this blog to help you, as they become available.

Getting your Merang TravelOffice System HST Ready:
In order to ensure that your account on the Merang invoicing and accounting system is ready, on July 1, 2010, please remember to change the default rate in your profile so that the system will calculate the tax on commission accurately for any bookings done on or after July 1st, 2010. To change the default rate, simply do the following on July 1, 2010:

For Back-Office Module users:
1. Login to the Back-Office module.
2. Click on “Manage Profiles” from the left-side menu. Then, click on “Tax and Currency Profile”.
3. Under the ‘Tax on Commission Earned’ section, change the Tax Title to HST and the Tax Rate to 13% (for Ontario) or 12% (for BC). Do the same under the ‘Outside Agents: Tax on Commission Paid’ section, if applicable.
4. Click on the “Modify Profile” button to save the changes.

For Invoicing Module only users:
1. From the invoicing module, click on “Settings and Profiles” from the left-side menu.
2. Then, click on “Tax and Currency Profile”.
3. Under the ‘Tax on Commission Earned’ section, change the Tax Title to HST and the Tax Rate to 13% (for Ontario) or 12% (for BC). Do the same under the ‘Outside Agents: Tax on Commission Paid’ section, if applicable.
4. Click on the “Modify Profile” button to save the changes.

That’s it. The next time you add a new product to an invoice, the default rate will show under the ‘Customer Fare’ of the product window in the invoice. You can always change this rate (to either 0% or 5%, or leave the default rate) depending on the nature of the product being sold directly under the ‘Customer Fare’ tab in the product window of the invoice. Whatever rate you enter will be used to calculate the tax on commission for this product/invoice.

Managing your trust bank account can be complex, especially with such large volumes of invoices to keep track of. Which is what makes the Merang TravelOffice such a useful tool for travel companies as it keeps track of and helps you control the cash flowing into and out of trust.

Setting up and using a Trust Bank Account for your business is always a good idea (even if it is not required in your area). The Trust Bank Account will ensure that there is always money available to pay-off suppliers from the cash received from customer sales, and only the difference (i.e. commission) is transferrable to a “General” Bank Account to pay you overheads (i.e. rent, advertising, payroll) etc.

Many of our users have been asking us to provide them with some step-by-step guidelines on what to do with customer deposits and supplier payments. So, below is our step-by-step guide on how to record and reconcile customer deposits and supplier payments using the Merang TravelOffice system. Remember, not all steps need to be performed daily; the reconciliations can be done monthly, quarterly, or annually.

So here goes:

A. Customer Deposits Received:

1. Deposit: When you receive cash from the customer, deposit the cash in your trust bank account (within 3 days per TICO), and make a note of this deposit in your deposit book you obtained from the bank. In your deposit book, record the date you deposited it, the invoice number (from the merang system) and the amount, so that you can later reconcile it.

2. Record: In the merang system, go to the second page of the invoice (“Customer Fare Received” tab), and click on “Add Payment”. Select the method of payment (e.g. cash/cheque), the date the money was received, the amount, and who it was received from.

[Note: If the invoice is already marked as "Complete" or "Accounting", then you can record the amount recieved by logging into the back-office, click on "Accounts Receivable-Customer" (gives a list of invoices for which amounts are still receivable from customers), and record the amount received here.]

3. Reconcile: On a monthly, quarterly, or annual (you decide) basis , you need to reconcile (i.e. match) what is recorded in the merang system to what was deposited in the trust bank account. To do this, simply login to the back-office, click on “Accounts Receivable-Customers”, and then from the left-side menu, click on “Reconcile Cash Receipts”. This will give you a list of all amounts that you had recorded as received from customers, that you need to reconcile to your deposit book/bank statement.

Match the invoice number & amount from merang to what is listed in the deposit book and the bank statement – click on “Reconcile” and record the date the amount was deposited into the trust bank account.

B. Payments Made to Suppliers:

1. Pay and Record: When you pay the supplier, go to the last page of the invoice (“Supplier Payments” tab), and click on “Add Payment”. Select the method of payment (e.g. cash/cheque, or company credit card), the cheque number (if any), date the money was paid, and the amount.

[Note: If the invoice is already marked as "Complete" or "Accounting", then you can record the amount paid by logging into the back-office, click on "Accounts Payable-Supplier" (gives a list of invoices for which payment is due to suppliers), and record the amount paid here.]

2. Reconcile: On a monthly, quarterly, or annual (you decide) basis, you need to reconcile (i.e. match) what is recorded in the merang system to what was paid from the trust bank account. To do this:

a. If amount was paid to supplier by cheque/cash/draft:
Simply login to the back-office, click on “Accounts Payable-Supplier”, and then from the left-side menu, click on “Reconcile Payments”. This will give you a list of all amounts that you had recorded as paid to suppliers, that you need to reconcile to your bank statement.

Match the invoice number & amount from merang to what is listed in your cheque stubs and bank statement – click on “Reconcile” and record the date the amount was withdrawn from the trust bank account (based on the bank statement).

b. If amount was paid to supplier by Credit Card:
Simply login to the back-office, click on “Accounts Payable-Company Credit Card”. This will give you a list of all amounts that you had recorded as paid to suppliers by credit card, that you need to reconcile to your credit card and bank statements.

Match the invoice number & amount from merang to what is listed in your credit card statement, and bank statement – click on “Reconcile” and record the date the amount was withdrawn from the trust bank account to pay the credit card statement.

C. Transferring Commission Amounts from Trust to General Accounts:

Only once the above steps A and B are completed (including reconciling), then you can transfer the amounts from the trust to the general account. To do this, log into the back-office, and click on “Cash – Trust Account”. This will give you a list of all invoices that have been fully reconciled (both the deposit side and the payment side) and the amounts that you can transfer to the general account. Once you have transferred the cash from trust bank account to your general bank account, you can record them as transferred here so that you don’t end up transferring them again.

Here’s the last set of ratios I will discuss in this series on conducting a health check of your company: Profitability ratios. There are various other types of ratios that we have not discussed here that you can also perform, if applicable to your business.

Now let’s look at “Profitability Ratios”.

What does it mean:
Profitability ratios provide a measure of how successful your travel business is in terms of generating commissions relative to sales or resources invested in the business.

Commission Margin Ratio (a.k.a. Gross Margin Ratio) measures how much commission your business is earning relative to the total gross sales of your business.

Commission Margin Ratio = Commission Earned / Gross Sales
(This information is available directly through the Sales Activity report in the Merang TravelOffice system – back-office module)

While this ratio gives you an indication of how much commission (on average across all suppliers) you are earning for each dollar of gross sales you make, it may also indicate how much of a discount you are providing. For example, if on average you earn 8% commission based on your agreements with suppliers, but you find that your commission margin ratio is only 5%, it indicates that you are on average giving a 3% discount on your sales. If in the following year, your ratio goes down to 2%, it indicates that you were forced to increase the amount of discounts – this could have been due to increased competition pressuring you to reduce your commissions even further, or perhaps suppliers are reducing their commission rates. If possible, try to set a target for your ratio, and creatively identify ways of meeting or exceeding this target.

Return on Assets measures how effectively your assets are being utilized to generate profits.

Return on Assets = Net Income / Total Assets

Return on Equity measures the profit earned for each dollar invested into the business by shareholders.

Return on Equity = Net Income / Shareholders Equity

As mentioned, there are various types of ratio analysis that can be performed. In this series, I’ve only focused on those that I felt are more applicable to the small to mid-size travel businesses. Feel free to google this topic on finanical ratios to learn about other types of ratios that we have not covered here.

Also, while these measures are useful in giving your business an overall health check, they do have limitations. As discussed in my last post, you should compare your results to historical values, industry-averages, and/or targets you have set. Factors of your specific business may result in the ratios not being meaningful, and so you should be cautious. But overall, these measures will probably provide a benefit to you and should be used to measure the health of your business on an ongoing basis.

Let’s get right to it. Previously we wrote about liquidity ratios, which provide good indications on how quickly you are able to pay off short-term debt, and hence how cash rich your company is. Now let’s look at “Asset Turnover Ratios”.

What does it mean:
Asset turnover ratios provide a measure of how efficiently your travel business utilizes its assets. Our focus here will be on Accounts Receivables ratios, which are very useful for travel businesses. Inventory ratios can also be calculated in a similar way, but as most travel businesses don’t carry inventory, we have excluded these.

Receivable Turnover Ratio measures how quickly you collect your accounts receivable. Generally, travel businesses have three sources of amounts receivable; amounts receivable from customers, commissions receivable from suppliers, and amounts receiable from your credit card processor (i.e. settlement). Calculating the Receivable Turnover Ratio on the first two (i.e. customers and suppliers) will provide a useful indication on how quickly you are collecting from these two sources.

For customers:
Receivables Turnover = Annual Credit Sales / Accounts Receivable

For Suppliers:
Receivables Turnover = Annual Gross Sales/ Accounts Receivable

To be useful, for the supplier receivables turnover, it is better to use the annual sales where commission is owing from suppliers – i.e. total gross sales for which the the supplier owes you commission, as opposed to cases where you collect the full amount from the customer and pay the supplier the net cost. However, most systems don’t provide such granular information and therefore getting the amount of “annual commission-owing sales” may not be possible. As an alternate, you could just use “Annual Gross Sales” instead. The idea is to take this measure and compare it against previous years ratios to see if you are getting better or worse.

Collection Period provides similar information to the receivables turnover ratio, but expresses it in number of days it takes to collect the amounts receivable (and therefore, may be more meaningful).

Average Collection Period = 365 / Receivables Turnover

Some points to note when using any of these financial ratios is:
* To be meaningful, you need a reference point against which to compare the result. Therefore, you could compare the results against the previous years for your business, or against other travel businesses. We are currently working on features/reports within the Merang TravelOffice system that will enable you to do both; compare against your historical ratios and compare against the general average ratios combining all our clients in the system (but not against any specific client).

Remember these are just indicators to get a pulse of the business.

At this time of year, many small businesses are busy preparing/finalizing their year-end 2008 financial statements for tax purposes, for submissions to other parties (e.g. regulatory bodies), and for some, to measure the state of their companies. Periodically monitoring the health of your business is always a good practice, especially during these recessionary times. It may give you some real insights into your business, help you identify any problem areas and focus and plan for the future.

We’ve put together some key “health check” indicators that you can easily calculate which will enable you to take a pulse of your business, which we will discuss over the next few series of posts. The numbers used in the following calculations can be obtained from your financial statements, and in many cases from the reports you create in the Merang TravelOffice system. This is not an extensive list of all financial ratios available (you can do a google search to get more) but just some basic ones we thought would be useful.

Let’s get started with “Liquidity Ratios”.

What does it mean:
They are a set of calculations (financial metrics) that will give you an indication of your company’s ability to meet short-term debt obligations. Basically, this is done by comparing your company’s ‘liquid’ assets (i.e. cash, or those easily converted to cash, such as short term investments, accounts receivable, and other ‘current assets’) to your short-term (or current) liabilities. This information is available on your balance sheet.

Generally, the higher the value of the ratios means that your company has a larger margin of safety to cover these short-term debt obligations (i.e. the “healthier” you company is). A higher value means that you will be able to pay your short-term debts as they come due. A low value means that you will have a more difficult time paying your short-term debts and meeting the running/operating costs of your business.

We will present here three types of liquidity ratios:current ratio, quick ratio, and cash ratio:

Current Ratio measures the short-term solvency of your business.

Current Ratio = Current Assets / Current Liabilities

Quick Ratio is a measure of your company’s ability to pay short-term debts instantly.

Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities
-OR-
Quick Ratio = (Current Assets – Inventory) / Current Liabilities
(as travel businesses probably would not have any inventory, the first calculation is more useful).

Cash Ratio is very similar to the quick ratio, except it only includes cash or cash equivalents (e.g. short-term or marketable investments) in the calculation. It is again a measure of the ability to pay off short-term debts immediately, but is more conservative than the Quick Ratio.

Cash Ratio = (Cash + Marketable Securities) / Current Liabilities

Again, there may be other Liquidity ratios that you could also use. But we hope you find these basic ones useful. Over the next few posts, we will provide some other types of ratios that you may be able to use.

Last year, we had posted details on things to consider for wrapping up the 2007 year. Many of you said that you found this useful, so we are reposting it here again as a refresher.

qComplete all outstanding sales invoices:
During the year, we all get busy focusing on sales, marketing, and other aspects of running our business. While ideally, you have been entering and reviewing sales invoices in the TravelOffice system regularly, you may have fallen behind leaving some invoices still in the “pending” or “review” status that should be “completed”.

In many cases, we have made reference to the Merang TravelOffice system. However, we believe these same ideas/steps may be followed to manage any business and ensure you have a smooth close and can plan your business for the future.

To ensure you maintain complete and accurate accounting records, monitor your receivables/payables, and can start fresh for next year, organize and complete any outstanding invoices for your business. Make sure you review each of these sales invoices to ensure that they are accurately and completely recorded and then mark them as complete if they meet your definition of “completed” invoices.

qReconcile your books:
Why reconcile? Reconciling your records ensures that your accounting records are accurate and complete, help you catch any mistakes or errors, and therefore better control your business. From the back-office module, you can reconcile all amounts received or paid to their source reports or bank statements. Here are some items that you should reconcile:

• Reconcile sales amounts received from your customers and deposited to your bank account (if applicable, these would be the amounts deposited into the Trust Bank Account). If these payments were charged to your customer’s credit/debit card, reconcile the amount received (net of any transaction fees) as per the TravelOffice system against the statements from your “Card Payment Processor”, and to the actual amount deposited into your bank account. This will ensure that you have received all amounts accurately from your card payment processor.
• Reconcile commission amounts received from suppliers to your bank statement (if applicable, these would be amounts deposited to your General Bank Account).
• Reconcile payments made to suppliers (either by cheque or company credit card) to your bank statement (if applicable, these would be amounts paid from the Trust Bank Account).

Once you have completed all necessary sales invoices, and reconciled the amounts received and paid to your bank statements, you can:

• If applicable, record any transfers made from the trust bank account to the general bank account in the TravelOffice system.
• Generate the Sales-Related Journal Entries and post them to your General Ledger.

qOrganize all expense receipts:
Hopefully, you already maintain separate folders to store receipts for your various expenses (such as rent, utilities, telephone, payroll, and internet). In order to save us time in tabulating all the various expenses, we also maintain a separate Excel file where we record these various expenses on a monthly basis. Within this Excel file, we maintain a separate tab for each type of expense and at the end of the month/year we simply take the totals and post it into our General Ledger system. We find that this works very well for smaller size organizations. If you would like a template copy of our Excel file, please send us a quick e-mail at info [at] merang.com and we will be happy to send it you.

In addition to these expenses, there may be other expense items such as depreciation or other write-offs of assets that you should also consider. You need to maintain accurate records of your fixed assets and properly calculate and depreciate these assets. Also, consider writing-off any receivable amounts that may not be collectible. From a tax perspective, these expenses may offset your income and help reduce your total tax owing. Therefore, proper planning can help you save money. However, do keep in mind that there may be differences in the calculation of these expenses for tax purposes versus for accounting purposes. You may need to check with your accountant for further details.

q Monitor the health of your business:
While you should be monitoring your business on an ongoing basis, this is a good time as any to take stock of your business. Through the TravelOffice system, you can generate various management reports to monitor sales activity, who owes you, and who you owe. You should also generate your financial statements (i.e. Balance Sheet, Income Statement, and Cash Flow Statement) and review these, after all journal entries have been posted.

There are various financial ratios (such as liquidity ratios, current ratios, debt-equity ratios etc.) and analysis that can be generated based on the information in these financial statements and reports that will provide you insights into the health of your business. We will very shortly be providing some more details on various “health check” ratios you can use to monitor the health of your business.

Monitoring the health of your business at this stage will help you plan and prepare better for 2009. You should also analyse other customer and marketing statistics of your business that will help you better focus your marketing efforts in 2009.

Although our user guides provide details on creating invoices, we’ve found that many of our travel business users don’t have a lot of time to go through the guides, and need a quick short-cut way to create the invoices (especially when training new staff), to get them started quickly.

So here goes. We’ve put together a simple 10 step process to creating an invoice. We hope this will help you and your staff create invoices quickly:

1. Login to the invoicing module.
 
2. Click on the “Create a New Customer Invoice” button. This will open a blank invoice screen.
 
3. Enter the departure date and return date. Then, enter the customer details (first name, last name, address and phone number) and click on the “Create” button. This will save the customer profile into the customer database and you will get a confirmation window. Close it. (Note: If the customer is an existing customer, do a search to pull up the customer record)
 
4. Next, scroll to the bottom of the invoice and click on “Save Invoice”. This will generate a new invoice number and save all the details to the new invoice.
 
5. Click on “Add Travel Product” in the itinerary details section, and the Travel Products window opens. You must select the supplier here (and if it does not appear on the list, click on the + icon and add it; @agents: you may need to ask your manager to do this). Click on Save Product. Then complete the “Customer Fare” and “Supplier Net Cost” pages. (You must click on the “Calculate Totals” or “Calculate Net Cost” buttons respectively on these pages). Click on the save button in each page to save the information. Close the window when complete.
 
6. Complete the remainder of the information in this first page of the invoice and click on the “Save invoice” button.
 
7. Click on the “Customer Fare Received” tab on the top of the invoice to go to the second page. Click on “Add Payment” to record the customer payment received.
 
8. The “Supplier Net Cost” tab (third page of invoice) is for information purposes. Click on the “Supplier Payments” tab on the top of the invoice to go to the fourth page of the invoice. Click on “Add Payment” to record how you paid the supplier.
 
9. To e-mail the invoice, click on “E-mail – Customer”. A box opens and you can enter the customer’s e-mail, and your e-mail to get a copy. Click on the “E-mail Invoice” button to send the invoice. To print the invoice, click on “Print Invoice” which opens the invoice as a MS Word document.
 
10. Finally, click on the “Booking Details” tab to return to the first page of the invoice. Change the status to “Complete” and click on “Save Invoice” to save it.