Per the Uniform System of Accounts for the Lodging Industry, an account entitled "Provision for Doubtful Accounts" has been established in the Administrative and General Department of a hotel operating statement. Each month, hotel managers estimate the portion of their property's receivables that they do not believe will be collectible. The Provision for Doubtful Accounts records charges made to provide for the probable loss on accounts and notes receivable. An increase in the dollars expensed to this category indicates a rise in uncollectable accounts. Conversely, a decline in the Provision for Doubtful Accounts indicates that hotels overestimated the amount of amount of revenue they thought would be uncollectable.CBRE's annual Trends in the Hotel Industry survey of hotel operating statements tracks Provision for Doubtful Accounts, as well as Credit Card Commission payments. To analyze trends in hotel collections, we studied data for a sample of 1,456 properties that reported these two expense categories each year from 2010 to 2017 (most recent data available). The following paragraphs summarize our analysis.Doubt On The RiseFrom 2010 through 2017, the hotels in our research sample achieve a 4.7 percent compound annual increase (CAGR) in Total Operating Revenue. Concurrently, the amount set aside for doubtful accounts increased at a CAGR of 10.8 percent.Except for 2012, the annual change in Provision for Doubtful Accounts was greater than the change in Total Operating Revenue each year during the study period. This indicates that over the eight-year period, hotel operators have had to write-off greater amounts of uncollectable revenue than anticipated. Collections were most challenging during the years 2015 and 2016 when the annual change in the Provision for Doubtful Accounts approached 30 percent.The amount of funds expensed for bad collections is still a very small portion of total revenue. Over the eight-year period, the Provision for Doubtful Accounts averaged just 0.047 percent of Total Operating Revenue per year. However, it did peak at 0.063 percent in 2017.Due to the greater transient orientation of limited-service, all-suite, and extended-stay hotels, these properties had the highest ratios of Provision for Doubtful Accounts to Total Operating Revenue in 2017. Convention Hotels, with an extreme orientation to group business, had the lowest ratio.Collecting With Credit CardsWhile an increased acceptance of credit card payments provides greater assurance of collection, it does come at a cost. Like the Provision For Doubtful Accounts, Credit Card Commission payments have grown at a greater pace than revenue the past eight years. From 2010 to 2017, while Total Operating Revenue was rising at a CAGR of 4.7 percent, Credit Card Commissions were increasing at a CAGR of 5.5 percent. Over the past eight years, Credit Card Commissions as a percent of Total Operating Revenue has grown from a low of 2.20 percent in 2010 to 2.33 percent in 2017.Based on our analysis, the greater growth rate for Credit Card Commissions can be attributed to a combination of rising discount rates, and an increased incidence of the use of credit cards. To estimate the usage of credit cards within U.S. hotels, CBRE made assumptions using information from the following sources:Credit card discount rates were estimated from a survey of hotel financial executivesLodging and sales tax estimates were made based on information from public sourcesGratuity assumptions were derived from our general industry knowledge and revenue mix data taken from the CBRE Trends databaseFrom 2010 through 2017, CBRE estimates that 83.7 percent of Total Operating Revenue at the hotels in the survey sample was charged to credit cards. Credit card usage peaked in 2015 at 85.0 percent. Credit card use was lowest in 2017 (80.1%).In 2017, credit card usage was greatest at extended-stay hotels (93.5%) and all-suite properties (88.1%). Resorts (63.6%) and convention hotels (75.6%) had the lowest levels of credit card use.A DisconnectWhen comparing recent trends in the Provision for Doubtful Accounts and Credit Card Commission payments we find a disconnect. It is reasonable to assume that a higher of level of credit card use should result in a decline in ability to collect. Therefore, the increased use of credit cards over the past eight years should have resulted in a deduction in the Provision for Doubtful Accounts. Further, the property types with the highest levels of credit card use should have had the lowest levels of Provisions for Doubtful Accounts. In both circumstances, this was not the case.What this indicates is that hotels are subject to the recent rise in credit card defaults, delinquencies, and challenges that all industries have faced. In addition, the transient nature of travelers using credit cards at all-suite and extended-stay hotels helps explain the greater levels of doubtful collections at these property types.As the lodging industry begins to accept more and diverse forms of electronic payment methods, this will not absolve hotels from bad collections. Property level controllers, as well as corporate financial executives, need to adjust the methods they use to assess and estimate their Provision for Doubtful Accounts to match the benefits and shortfalls of the new technologies.This article was published in the March 2019 edition of Lodging.

I use this quote to start many of my workshops. To me it's the way I want the participants to stand in their individual power during our time together. It's also how I see our industry. In the hotel business we all need to have an opinion and even more important we need to be able to share those thoughts. Reason being is, we all have something important to bring to the table.That's what I tell my workshop participants. To illustrate this, I often ask the following question. "What would you rather have to increase your GOP in your 300-room hotel that is currently operating at 75% occupancy with a $150 average rate, a $4 room rate increase or 2 more points of occupancy?" I get a lot of responses right off the bat. People are quick to jump on both options. But which one is right? The simple answer is they're both right and at the same time they're both wrong.That's the way I see it. Our business is not a science where there is a definitive answer. I have always said, "Put 10 hotel managers in a room and ask one question and you will get at least 12 answers." Hotel people love to pontificate about the answer to just about any question involving operations or the finances of hotels. You're never really short of opinions on what you should do. That's the way it is with most hotel executives. What I want is the same level of bravado in my session today with all my participants, so to stir things up a bit with the audience this is what I like to do.The participants all have an opinion, but often they are hesitant to produce it right away. Many of the workshop attendees are not used to being in the spotlight or on a stage. It takes them a little while to warm up. Just like the audience at a talk show or a quiz game, they need to be properly warmed up before we can get the most from them. I say something like this: Depending upon where you sit you will probably have a different opinion about what you would like better, the rate or the occupancy. Let's play this out a bit longer and do some math on each option to see if one selection is better than the other when it comes to GOP.$4 in rate seems like a no brainer. We all like rate because it's almost all pure profit. (300 room hotel * 365 days = 109,500 room available) currently operating at 75% = (109,500 * .75% = 82,125) and $4 more = ($4 * 82,125 = $328,500) in new room revenue. Less some additional travel agent commissions, corporate fees, credit card commissions and we're left with say.... 90% of that (328,500 *.90%) = $295,650 in GOP2 points of occupancy can also sound pretty attractive. (109,500 * .02 = 2,190) additional rooms. (2,190 * $150 = $328,500) in new room revenue. Less the additional costs for commissions, cleaning and amenities for the new occupied rooms and the additional fees and CC commissions @ 30% = ($328,500 *.70%) = $229,950 in GOPAt this point I say something like, "So I guess the room rate scenario wins; is there anything else we need to consider?" Then I wait and it usually takes about 2 seconds before it starts."What if the new occupied rooms are group rooms?""What if the additional rate comes from the OTA's?""What if the new occupancy is on Sundays?""What if the new occupancy were all stay overs"?"What if the additional rate comes from existing corporate clients?""What if the additional occupancy comes from transient family clients?""What about the additional wear and tear on our rooms with that extra occupancy?""What if we had some of both occupancy and rate, what would that look like?"We now have a full-on debate raging and everyone seems to have an opinion, and some are very strong. The foodies have one slant and the salespeople have another. Rooms division people are all about the right customers staying in our rooms. The administration folks can make the argument either way. The GM says she would take either scenario with a smile. I stop things about now and I make my point. In our business we all have the ability to see things our way. We can justify almost anything as it relates to what's good or not so good for our business. Knowing this about the people in the workshop is a good place to start. Showing them that their opinion counts and it's just as valid as another's is powerful. I want people to see that they make a difference no matter where in the hotel they earn their paycheck. We are all in this together and whether the subject is more business, right sizing the head count or what's for lunch in the cafeteria, everyone is entitled to their own thoughts. Nobody gets to be right today, and everyone is wrong and while we are at it everyone is right, and nobody is wrong.If we can truly model this philosophy, then we can get the entire team to lean into the challenge of figuring out this thing we call a hotel. What is the best way to move forward? There are so many aspects of the business we need to attend to. What can we do to truly engage the hearts and minds of the entire team?That is what it's all about. Getting everyone to play. If we sit on the sidelines waiting for the GM and corporate to fill our heads with what to do and how to think we just ordered the worst dish on the menu. Be a hotel full of the mindset that it's all about having everyone step up and truly contribute!