Working out your cancellation policy

Hotels, guest houses and bed and breakfasts must take steps to protect themselves from the financial loss of no-shows and cancelled bookings. This is one of the most important issues to consider when it comes to hotel finance and starting a hospitality business.

The laws and regulations around hotel bookings are fairly complex, but in general terms, a booking becomes a contract when the hotel has made an offer of accommodation and the customer has accepted it, either orally or in written or electronic form. However, if no deposit has been paid and no credit card details have been provided, there is technically no legal contract, and the hotel will not have many options if the customer cancels at short notice or doesn’t show up. Most hotel owners will take a deposit or credit card details so that the customer is contractually bound to their booking, and work out their cancellation policy around this.

Many hotels require guests to book with their credit card and will automatically debit the card with the full price of the room if they fail to show up. When it comes to cancellations, you may implement a fee which varies according to the amount of notice the guest gives. In other words, the closer to the time of arrival the cancellation is made, the less of the deposit the person will receive back. If you do take deposits from customers before they arrive, it is important for VAT purposes that you account for them at the time they are taken, not when the entire balance is paid.

Under the Trade Descriptions Act, all factual statements made about your hotel must be accurate and you must provide clear pricing information on your website, marketing materials and adverts. This includes your cancellation policy, so that customers know exactly what will happen if they cancel or if they do not turn up. In order to stay legally protected, you need to make sure the customer is completely aware of your cancellation policy at the time of booking and that they agree to abide by it.