When a hotel cancels a booking 48 hours before arrival, the operator refunds the traveller. Under the UK's proposed reforms to the Package Travel Regulations, that refund must happen within 14 days. The problem: most supplier contracts allow 30 to 90 days for credit notes or refunds. The operator is out of pocket from day one, financing the gap between consumer refund obligations and supplier recovery timelines.
The problem
The current UK Package Travel and Linked Travel Arrangements Regulations 2018 require organisers to provide refunds for cancelled packages but do not specify a fixed refund period with the precision the proposed reforms introduce. The UK government's consultation on reforming the Package Travel Regulations proposed a 14-day refund window, aligning with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, which already mandate 14-day refunds for distance selling.
For operators, the 14-day clock starts when the service is cancelled or when the traveller is entitled to a refund. The operator must pay regardless of upstream recovery status. According to ABTA's 2024 member survey, the average time to recover a supplier credit following a cancellation was 47 days. That leaves a minimum 33-day financing gap between the operator's refund obligation and the point at which supplier funds are recovered. For smaller operators, this gap represents a direct cash flow risk.
The cash flow gap in practice
Consider a group booking worth GBP 15,000 where the accommodation supplier cancels due to overbooking. The operator must refund the consumer within 14 days. The supplier's standard terms allow 60 days for a credit note. The operator finances GBP 15,000 for 46 days. Multiply this across a peak season with 20 to 30 similar cancellations, and the cash flow exposure grows into six figures. Operators without sufficient reserves or credit facilities face real liquidity pressure.
Restructuring supplier contracts
The fix is contractual, not operational. Supplier agreements need explicit refund and credit note timelines that are shorter than your consumer refund obligation. A 7-day supplier refund clause gives you a buffer before your 14-day consumer deadline. Contracts should also specify the mechanism: direct refund to a nominated account, not a credit note applied to future bookings. Credit notes do not solve a cash flow problem when the operator owes the consumer cash within 14 days. Include escalation provisions and the right to offset against future payments if the supplier misses the contractual refund window.
Penalty and enforcement risk
The UK consultation signals intent to strengthen enforcement of refund obligations. While specific penalty amounts are still under development, the direction is clear: trading standards authorities will have more tools to act against operators who consistently miss refund deadlines. Repeated failures could also trigger scrutiny of the operator's insolvency protection arrangements and financial standing.
What to do now
Review every supplier contract for refund and credit note timelines. Any timeline longer than 10 days creates risk against a 14-day consumer refund obligation. Renegotiate to include direct refund clauses with 7-day deadlines, offset rights for missed deadlines, and explicit language distinguishing cash refunds from credit notes. Build a cash reserve model for peak-season cancellation exposure. Do not wait for the final regulation text to start renegotiating. Supplier contract cycles are long, and the operators who move first will set the terms.