Introducing credit card holds: Restaurant reservation cancellation fees

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There are many benefits for restaurants to adopt a reservation system. Advanced diner reservations give restaurant owners insights to better manage food inventory and control floor capacity. However, there’s one fear among restaurant owners who run a reservation system: no-shows.

Missed reservations create a significant financial impact for restaurants, large and small. This is why we are introducing Credit Card Holds—a new feature that allows restaurant owners to hold and charge guests’ credit cards for late cancellations and no-shows so that restaurants can prevent loss of revenue due to empty tables.

Managing restaurant reservation cancellation fees with Credit Card Holds

Prevent reservation no-shows and late cancellations by allowing restaurants to charge diners who violate the policy.

We know many of our customers have countless reservations per service, making it a hassle to go back and find the reservation no-shows when applying the penalty. To save time, Credit Cards Holds allows users to mark any “late cancels” and “no shows” directly on the reservation during the shift, so users can quickly identify and charge the policy validators after service.

Charging for violations is tricky. On one end, restaurant owners would like to recover from the revenue loss; on the other, restaurant owners need to balance customer experience. We believe flexibility is key, which is why our system allows users the option to charge a customized amount for any violations.

To ensure accountability, Credit Card Holds also requires the user to enter their initials when charging the customers. The initials will appear next to the charge within the history log.

The self-serve feature allows restaurant owners to adjust cancellation policies that best fit their restaurants. 

Many factors go into setting up a restaurant’s cancellation policies. The details of these cancellation policies will often change as the business evolves. With the new Credit Card Holds feature, restaurant owners can easily update the details of their cancellation policy in the Yelp Business Owner Account.

Why use Credit Card Holds?

A reservation system works for both customers and restaurateurs. For customers, it ensures their table will be available, and they can enjoy the night out they planned. For restaurateurs, dining reservations guarantee business and help establish staffing and inventory management expectations.

Last-minute cancellations are therefore more than just a hassle—they can lead to an unprofitable night, goods unsold, and servers untipped. Using Credit Card Holds and establishing cancellation fees help protect business.

Sometimes, customers can’t make their reservation time. That’s OK—but it doesn’t mean restaurateurs should eat the cost. Reservations mean that walk-ins don’t get seated, or other reservations can’t get made, so a cancellation or no-show is more than just one table service lost.

Restaurants must prepare for a large party or special event and plan their inventory to accommodate it. If the party is a no-show or the event is a late cancel, then inventory is overstuffed. In economic terms, this is called the bullwhip effect. And these unexpected supply problems can create long-lasting, systemic problems.

So, holding a customer’s credit card number as collateral against their reservation is a smart idea for restaurants. They can recoup losses from the lost reservation and other customers who couldn’t get a seat.

Establishing reservation standards

Before you establish a no-show fee or take customers’ credit card information, you’ll need to explain why you’re doing so. Your policy doesn’t need to be complex, but it does need to be clear. A simple explainer on your website or attached to Credit Card Holds can help customers see your point of view.

With Yelp’s system, restaurants can customize policies for each unique situation: A cancellation of a large party within 24 hours could be charged a set percentage of what you expected to earn from the group, or a no-show could be charged a flat fee.

Restaurants charge different amounts depending on their location, type, and customer relationships. So, while you don’t want to get the short end of the stick, you do want to ensure that the fee feels reasonable. If you’re wondering how much seems reasonable, see what other restaurants in your area are doing.

Many new restaurants feel they need to bend over backward to please potential guests. That’s true but to a limit. Establishing cancellation fees and no-show fees is a sign of self-respect, and the customers you want will understand that.

Use Yelp tech to your advantage

When you’re developing your reservation methodology, using the latest technology can help give you a sizable advantage over competitors. Yelp Guest Manager, for example, has a waitlist function that can help eager diners get a table at your restaurant with the push of a button. So, if you have a no-show, you can still fill that table with some customers lucky enough to find that open spot at the last second.

If your FOH is slammed, Yelp Kiosk can help cut down on wait times by allowing customers to check in and seat themselves. This can be especially valuable during events or for small party sizes and walk-ins looking to snag a table at crunch time.

At Yelp for Restaurants, we’re committed to help restaurants improve their operational efficiency and enhance their diner experience through technology. We are excited about our digital solutions today and look forward to developing new features like Credit Card Holds to serve our restaurant customers better.

Credit Card Holds will be available to current Yelp Guest Manager customers in August 2022. Want to see how it works and if it’s right for you? Reach out to us for a free demo.