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Helping you to run a trust account

It can be daunting to embark on implementing a travel trust account as the means of providing financial protection for consumer’s payments for travel services. Having access to standard solutions to assist with putting together the ingredients to make up your chosen trust structure can ease that burden.

Trust accounts have historically been viewed by some as the least secure form of the options available for providing financial protection under UK legislation. Yet trust accounts are the only method of protection that holistically protect the customer: both in the event of a company’s financial failure; but also, where a significant event occurs to debilitate an otherwise financially solvent company while it trades.

But what does it mean to take the brave step towards protecting your business and your customers by incorporating a trust account into a travel business’s processes? And how is it done?

Strong working capital
It goes without saying that a business needs a strong working capital position before it can afford to ring fence all money received from customers yet at the same time pre-pay suppliers and meet other liabilities. So, honest and realistic cash flow assessment has got to be the first port of call for any company considering this route.

Raising finance
If the assessment doesn’t give the green light based on existing capital, then raising finance should be the next consideration. Assess the level of finance based on a cash flow model that doesn’t place reliance on customer money.

Reporting capabilities
The ability to identify the funds requiring protection and to reconcile them with a bank transaction requires capable IT systems. There is no need for these systems to be extravagant though. Specific ‘trust account software’ isn’t required but is available. If a system has the ability to produce a report in excel format showing booking references, travel dates and reconciled funds paid by consumers, then it has passed this test.

Satisfactory trustees
The 2018 Package Travel Regulations brought in enhanced obligations on trustees appointed over travel trust accounts: trustees must be independent of the directors of the travel business; and funds in trust should be sufficient in value to meet all probable consumer claims in the event of an insolvency.

Trustees thus cannot be faint-hearted. Amongst other things they should understand the law within which the travel company operates as well as understand and correctly follow the obligations on trustees in trust deeds. It’s also important that they have an understanding of the cashflow, financial and accounting environment in which a travel company operates.

One size does not fit all
It’s a common misconception about trust accounts that if it can’t be done the obvious way, then it can’t be done at all. There are many ways of structuring a trust structure to achieve the legal, commercial, operational and financial objectives of a travel company. It sometimes just takes a bit of imagination!

Access to insurances
Travel companies are required to hold insurances to ‘plug’ the risk gap created where trust funds are released from trust prior to customers’ travel or where repatriation costs need to be covered. Supplier failure insurance is a common stop gap in the UK but the PTRs require a distinct financial failure insurance policy. An understanding of these differing insurance requirements and an ability to access premiums at sensible rates is therefore an important item on this checklist.

Involve your merchant services supplier
Don’t wait for your merchant services supplier to impose a trust account requirement on terms you might find difficult to manage. Pre-empt them with a trust proposal as a sweetener of their risk in the current climate.

Moving to a trust account model of financial protection is like deciding to run a marathon: you know it’s hard, you know it might take a while; but it’s going to be good for you and taking even a few of these steps could help in the strive back towards a strong and healthy business.


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