Cancellation policy

Why is it important to define and monitor the cancellation policy in hotels?

The cancellation policy directly impacts a hotel’s commercial strategy, cash flow, and the risk associated with managing reservations.

A policy that is too flexible may lead to a high number of last-minute cancellations, leaving rooms unsold and compromising the forecast. On the contrary, overly strict terms can discourage bookings, especially in competitive markets or uncertain conditions (such as international travel, events, or unstable weather).

Additionally, the cancellation policy is a key element in how guests perceive value and reliability: offering clear, balanced, and visible terms at the time of booking helps build trust with the customer.

Many hoteliers implement different cancellation policies depending on the channel, rate type, or seasonality (e.g., non-refundable rates at a discount, or free cancellation up to 3 days prior for direct bookings). 

Monitoring the impact of these policies consistently allows hotels to find the right balance between commercial attractiveness and financial protection.

How is the cancellation policy applied?

The cancellation policy is set within the property management system (PMS) or channel manager and is displayed to guests at the time of booking, both on the official website and on OTAs.

It should be written clearly and understandably, specifying:

• The number of days in advance for free cancellation.
• Any penalties applied for late cancellations or no-shows.
• Special conditions, if any (e.g., non-refundable rates, vouchers, the possibility to modify dates).

Example: “Free cancellation up to 3 days before arrival. In case of cancellation after this period or no-show, the amount of the first night will be charged.”