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Hotel Cancellation Policy: Best practices & process

  Posted in Resources  Last updated 23/11/2023

What is a hotel cancellation policy?

A hotel cancellation policy outlines the terms under which a guest can cancel their booking without incurring a penalty, as well as those scenarios where there will be a fee associated with a cancellation. It’s a crucial component of a hotel’s operations, balancing guest convenience with the hotel’s need to manage rooms and revenue efficiently.

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Why having a clear hotel cancellation policy is important

A hotel cancellation policy is more than just fine print – it’s a crucial piece of your hospitality puzzle that shapes guest experiences and protects your bottom line. From bolstering guest confidence to safeguarding your revenue, a clear cancellation policy is your ally in navigating the ebbs and flows of hotel operations with finesse and confidence. 

Here’s how the right cancellation policy can help you secure your revenue:

  1. Enhances guest confidence: When guests understand the terms of cancellation, they feel more secure in their booking decisions. This transparency reduces anxiety and builds trust, which is key to guest satisfaction and loyalty. A clearly stated policy assures guests that there are no hidden clauses or unexpected charges, fostering a sense of fairness and reliability in your hotel’s brand.
  2. Protects revenue streams: Cancellations are an inevitable part of hotel operations. However, without a clear policy, they can become a significant drain on revenue. A well-defined policy helps manage these situations by setting out clear terms for refunds or penalties. This not only helps in recouping potential losses but also in forecasting revenue more accurately.
  3. Reduces administrative hassles: Ambiguity in cancellation policies can lead to disputes and increased administrative work. Clear policies mean fewer misunderstandings and less time spent resolving issues related to cancellations. This efficiency is especially important during peak seasons or times of high occupancy, where managing every booking effectively is crucial.
  4. Better inventory management: Understanding when and how guests can cancel allows hotels to manage their room inventory more effectively. With a clear view of potential room availability, hotels can adjust their pricing strategies, offer last-minute deals, or make rooms available to waitlisted guests, thus maximising occupancy and revenue.
  5. Adapts to market expectations: The hospitality industry is highly competitive. Even the terms of your cancellation policy can be a point of difference between you and other hotels. A policy that’s fair and flexible can be a deciding factor for guests, particularly in a market where customers value transparency and flexibility.
  6. Prepares for unforeseen circumstances: In scenarios like global health crises or natural disasters, having a clear and flexible cancellation policy can help manage an influx of cancellations. It also demonstrates empathy and understanding towards guests who may need to change their travel plans due to circumstances beyond their control, enhancing your hotel’s reputation for customer care.

The hotel booking process flow

Managing the booking process across a large hotel can be complex, particularly when it comes to working in the cancellation process as well. This section breaks down each step, offering insights into how to handle the process efficiently while still ensuring the best possible guest experience.

Step 1: Guest initiates booking

The journey begins with the guest deciding on a stay at your hotel. They browse through options, select a room, and proceed with the booking. This is where the first impression is made, and it’s crucial to ensure the process is seamless. Clear information about room types, rates, and, importantly, your cancellation policy should be readily available.

Step 2: Booking confirmation and policy overview

Once the guest finalises their booking, they receive a confirmation. This stage is not just about acknowledging the booking but also about reinforcing your cancellation policy. An email or a message that succinctly outlines the key points of the policy ensures that the guest is fully informed from the outset.

Step 3: Pre-arrival communication

As the check-in date approaches, sending a pre-arrival message not only enhances the guest experience but also serves as a reminder of the booking details, including the cancellation policy. This communication can include personalised messages, additional services offered by the hotel, and a gentle reminder of the last day for a penalty-free cancellation, if applicable.

Step 4: Handling cancellations

If a guest decides to cancel, this step is where your cancellation policy comes into play. The process should be as straightforward as possible, whether the cancellation is made online, via a call, or through an email. Prompt acknowledgment of the cancellation, along with clear communication about any charges or refunds, is key to maintaining a positive relationship with the guest.

Step 5: Post-cancellation engagement

After a cancellation, it’s beneficial to engage with the guest. Sending a follow-up message thanking them for considering your hotel and inviting them to book in the future shows goodwill. This step is also an opportunity to ask for feedback, which can provide valuable insights into why the guest cancelled and how the experience could be improved.

Step 6: Room re-booking

Once a cancellation is processed, the room should re-enter your inventory. Quick and efficient updating of availability across all platforms is crucial to maximising the chances of re-booking the room. This is where a robust hotel management system, like SiteMinder, can be invaluable in automating and streamlining this process.

Step 7: Review and adjust policies

Regularly reviewing how cancellations are handled provides insights into guest behaviour and policy effectiveness. Analysing trends and feedback can help in refining your policies and procedures, ensuring they align with guest expectations and your business goals.

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Steps in the cancellation of a hotel reservation

Unexpected cancellations should be expected, and understanding the entire flow from start to finish can help you better understand your audience and create the best possible cancellation policies for your business.

Broadly, here’s what it looks like:

1. Decision to cancel

It starts with the guest’s decision. For whatever reason – be it a change of plans, personal circumstances, or unforeseen events – the guest initiates the cancellation process.

2. Review cancellation policy

Upon deciding to cancel, the guest revisits the hotel’s cancellation policy. This step involves understanding the terms they agreed to during booking – including deadlines, potential charges, or any penalties. It’s crucial that these terms were made clear at the time of booking to avoid confusion at this stage – not just for the guest, but also for any staff member who must tackle the cancellation.

3. Initiate cancellation process

Next, the guest takes action to cancel their booking. This might involve logging into an online booking system, mobile app, making a phone call, or sending an email. The method depends on the hotel’s systems and what was offered as options to the guest during booking.

4. Confirm cancellation

Once the guest initiates the cancellation, the hotel’s responsibility is to process this request. This involves updating the booking system, adjusting room availability, and handling any financial transactions such as issuing refunds or applying charges as per the policy.

5. Refunds and charges

After processing the cancellation, the hotel sends a confirmation to the guest. This communication should include details of the cancellation, any charges applied or refunds processed, and a thank you for their business, even if it didn’t come to fruition this time.

6. Alternative options

Post-cancellation, the room that was booked becomes available for others to reserve. The hotel updates its inventory across all booking platforms to reflect the newly available room, ensuring that no opportunity for a new booking is missed.

7. Post-cancellation feedback

Finally, the hotel may analyse the cancellation – especially if it’s part of a pattern. Understanding why guests cancel can inform future policy adjustments or operational changes. While direct feedback from the guest isn’t always possible, tracking cancellation reasons can provide valuable insights for hotel management.

Image representing hotel cancellation policy

Key considerations in a hotel cancellation policy

Every hotel is unique, and hotel policies must reflect that. That said, there are a few consistent areas that are crucial to cover in any hotel cancellation policy.


Deciding on a fair deadline for free cancellation is crucial. This might range from 24 hours to a week before the check-in date, depending on your hotel’s booking patterns and operational needs. It’s about finding the right balance between flexibility for guests and predictability for your hotel’s planning.


If cancellations occur past the free deadline, setting reasonable fees is important. These could be a percentage of the booking cost or a flat rate, but they should be proportional to the time of cancellation and the potential revenue loss.

No-show policy

No-shows are an inevitable part of hotel operations. Your policy should clearly outline how no-shows are treated, whether that involves charging the full rate of the first night or a different penalty. This policy needs to be communicated clearly at the time of booking.

Refund policy

In instances where a refund is due, the policy should specify the conditions and the method of refund. Whether it’s a full refund, partial, or credit towards a future stay, these terms should be transparent and fair. This is where having a robust payment processing facility that can handle refunds is especially helpful.

Force majeure clause

It’s essential to have a clause for extraordinary circumstances like natural disasters, political unrest, or global health crises. Such a clause allows for more flexible cancellations, showing empathy and understanding towards guests affected by events beyond their control. Force majeure clauses are generally quite broad in their wording, essentially boiling down to “if something really wild happens, we’ve got you covered”.

Modification policy

Guests often need to change their booking dates rather than cancel outright. Your policy should clearly state how modifications are handled, any associated fees, and the notice period required for making changes.

By Dean Elphick

Dean is the Senior Content Marketing Specialist of SiteMinder, the leading technology provider delivering hoteliers unbeatable revenue results. Dean has made writing and creating content his passion for the entirety of his professional life, which includes more than six years at SiteMinder. Through content, Dean aims to provide education, inspiration, assistance and value for accommodation businesses looking to improve the way they run their operations achieve their goals.

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