Deposits: How low can you go?

Deposits: How low can you go?

A sign of the tough market conditions is the re-emergence of aggressive low deposit schemes. In the first quarter of 2019, customers have been able to secure their holidays for as little as £30 with some well known mass market operators. If they’re willing to sign up for Direct Debit on booking, they can even book for nothing.

 Whilst it may be an effective marketing strategy, we’d advise extreme caution. 

Firstly, you need deep pockets to make this work. You may need to pay some of your suppliers in advance of receiving cash from your customers, leaving you with an expensive funding gap. On The Beach reportedin February 2019 that their expected cash outflow from funding their low deposit scheme will trough out at £23m!

 

Secondly, the current economic data doesn’t make great reading. With household debt and personal insolvencies running at dangerously high levels, it’s a brave business that enters what is effectively the sub-prime credit market.

Intuitively, it would seem likely that low deposit schemes would result in higher cancellation rates, and increased bad debt write offs, though there isn’t much data to back this up.

 

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