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Hotel Cash Flow Problems: Why small Hotels struggle and how to fix them

Many independent hotels face cash flow crises despite high occupancy. Learn the real causes, from OTA delays to poor forecasting, and practical accounting fixes to protect liquidity and profitability.

HOTEL FINANCE

8/23/20256 min read

100 us dollar bill
100 us dollar bill

Why small Hotels struggle with Cash Flow, and how to fix it

At Antravia we know that running a hotel is not just about filling rooms. Many small and independent hotels do well on occupancy and revenue but still find themselves short on cash when bills are due. This is not a failure of sales, it is a failure of cash flow management.

According to STR (references below), global average hotel profit margins sit between 25% and 40% depending on market and season. Yet a 2023 CBRE Hotels report found that more than 60% of small independent hotels experience at least one cash flow crisis per year, often during the low season. The problem is rarely lack of demand alone, it is also down to the timing of money movements.

The common causes of Cash Flow problems

1. Seasonality
Hotels in leisure destinations often earn most of their revenue in three or four high-season months. Payroll, utilities, and supplier contracts, however, continue all year. Without careful planning, the cash generated in peak periods disappears before the next season starts.

For reference, STR data shows that in seasonal destinations, occupancy can swing from above 80% in peak months to below 30% in the off-season. Without reserves or flexible cost structures, these swings leave hotels starved for cash long before the next high season begins.

2. OTA Payment Delays
According to Hotel Tech Report (reference below), Online travel agencies (OTAs) typically pay hotels 15 to 30 days after guest departure. For a hotel that relies on Booking.com or Expedia for 50% of bookings, this creates a significant timing gap between providing the service and receiving the cash.

3. Credit Terms with Tour Operators
In addition to OTA delays, many tour operators and wholesalers pay 30 to 60 days after checkout. This is effectively an interest-free loan from the hotel to the operator. In practice it often leaves small hotels with rising accounts receivable and tight liquidity.

4. Fixed Costs
Staff salaries, energy bills, local taxes, and insurance premiums do not adjust with occupancy. In some regions, payroll alone consumes 25% to 35% of revenue. A drop in bookings by even 10% can trigger a disproportionate cash crunch.

5. Weak Forecasting
Many small hotels track occupancy but not cash. They do not prepare forward-looking cash flow statements, which means they are surprised by large outflows such as annual license renewals or debt repayments.

The real impact cost of poor Cash Flow

A cash flow shortfall forces hotels to use expensive solutions. Bridging loans often carry double-digit interest rates. Late supplier payments damage credit ratings and can lead to reduced credit terms. Payroll delays create staff dissatisfaction and turnover, which is costly in hospitality. In extreme cases, small hotels become acquisition targets because they cannot fund short-term liquidity despite being profitable on paper.

A Cornell Hospitality Quarterly study found that independent hotels with weak cash controls reported up to 20% higher short-term borrowing costs compared to peers. This financial penalty compounds over time, draining profitability even when revenue looks healthy.

A 2022 survey by Hospitality Financial and Technology Professionals (HFTP) found that 37% of independent hotels had to rely on personal loans or owner capital injections in the previous year to manage liquidity. This is not sustainable.

Breakage - hotel advantage

Another factor that complicates hotel cash flow is breakage (both as a loss and revenue for hotel).

In the case of revenue , this includes revenue from prepaid services that guests do not end up using. This can include prepaid meals, spa credits, airport transfers, or package inclusions. On the surface, breakage looks like extra profit because the service was never delivered and the cost avoided. In practice, it often distorts both accounting and liquidity.

Here’s why breakage matters:

  1. Deferred Liability: In many accounting frameworks (especially under GAAP ASC 606 rules), breakage—if not expected to be redeemed—should be recognized as revenue only when it's probable that a reversal won’t occur. That means you can’t always count unredeemed services as income immediately.

  2. Operational Misalignment: High breakage may reflect weak upselling efforts or poor guest engagement strategies. Worse, it can falsely inflate profitability on paper, leading business owners to overestimate their available cash for investments or improvements.

A Hospitality Financial and Technology Professionals (HFTP) insight emphasizes that breakage must be managed like occupancy rates or average daily rate—tracked consistently rather than assumed. The result? Having accurate visibility into how much revenue truly reflects guest behavior versus accounting timing.

Breakage - hotel loss

For many independent hotels, one of the biggest hidden drains on cash flow is breakage.. Being revenue that should have been collected but never arrives because of invoicing errors, missed claims, or weak reconciliation processes.

This happens most often with OTA and tour operator bookings. A guest stays, the room is occupied, but the hotel either fails to issue the correct invoice to the operator, applies the wrong rate, or misses charges for extras. In some cases, the invoice is sent but not followed up, meaning it sits unpaid until it expires under the operator’s claim deadlines.

Industry audits suggest hotels can lose between 2% and 5% of revenue annually through invoicing mistakes and reconciliation failures. On a property generating $5 million in annual room revenue, that equates to $100,000 to $250,000 simply lost and not because of occupancy problems but because of accounting gaps.

The risk is higher for hotels with multiple distribution partners. Each OTA and operator has its own settlement cycle, credit policy, and claim window. Without a system to reconcile bookings against arrivals and payments, revenue “leaks” quickly build into substantial cash shortfalls.

Antravia has a lot of experience (both from the hotel side, as well as the tour operator side) on breakage. Every booking should be cross-checked against guest stays, every invoice tracked to payment, and aging reports reviewed weekly. Larger hotel groups (who still have very high breakage losses) use automated revenue audit tools to close this gap. Independent hotels can achieve the same result with consistent accounting processes and by assigning ownership of reconciliation tasks.

Breakage is silent because it doesn’t show up in occupancy reports or ADR calculations. It only appears when cash runs short. Preventing it is one of the fastest ways for hotels to improve liquidity without increasing sales.

Practical fixes for small Hotels

1. Forecast Cash, Not Just Occupancy
A hotel should maintain a 12-month rolling cash flow forecast. This means projecting not only revenue but also timing of OTA payments, tour operator receivables, payroll cycles, loan repayments, and tax due dates. Updating this weekly or monthly transforms surprises into planned events.

2. Negotiate Payment Terms
Hotels can ask OTAs and operators for faster settlement cycles. While not always possible with large platforms, smaller operators often agree to partial prepayments or shorter settlement windows in return for room allocations.

3. Build a Cash Reserve
Best practice is to maintain a reserve equal to at least one month of fixed costs. For a 40-room hotel with monthly fixed costs of $120,000, this means keeping $120,000 in reserve. It provides breathing space during low season or unexpected downturns.

4. Align Debt with Seasonality
Loan repayment schedules should match the seasonality of revenue. Instead of equal monthly payments, hotels can negotiate quarterly or seasonal repayment plans that align with cash inflows.

5. Separate Bank Accounts
Maintain a dedicated tax reserve account and a payroll account. Each month, transfer the relevant amounts into these accounts. This prevents accidental spending of money that has already been committed.

6. Invest in Systems
Modern property management systems (PMS) integrate with accounting software to provide real-time data on receivables and cash balances. Xero and QuickBooks both support this, and larger hotels can connect to Opera or Protel PMS. Even a simple system can prevent manual errors and help reconcile OTA payments.

Cash flow problems are not caused by poor hospitality. At Antravia we find that some hotels treat accounting as an afterthought. Independent hotels that implement disciplined cash management consistently outperform their peers. STR analysis highlights that hotels with structured cash forecasting and reserve policies maintained gross operating profit per available room (GOPPAR) up to 8% points higher than competitors in the same markets.

Cash flow discipline is the difference between being forced to sell equity in a crisis and being able to reinvest profits into growth. For small hotels, it is not optional. It is survival.

Final Antravia Word

Independent hotels can be profitable and still run out of cash. That is why cash flow management must be treated as a daily discipline, not a year-end accounting exercise. With forecasting, reserves, negotiation of payment terms, and the right systems, hotels can avoid liquidity crises and focus on what matters most, which is delivering a guest experience that drives repeat bookings.

At Antravia, we work with small hotels to set up financial systems that keep cash under control. Contact us

References

Antravia Advisory

Where Travel Meets Smart Finance

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