The Difference Between Bond and Trust Account Protection
When it comes to ensuring Package Travel Regulations compliance for a new business, or even if you're considering switching financial protection methods, knowing the differences between the approved financial protection options is important. Between bond, trust accounts, and insurance, there are many different variables that could sway your decision, and knowing the basics of each option is also vitally important to make a choice that is right for you, not just the PTRs. But what is the difference between these approved options?
Of these three financial protection methods, bond protection and trust account protection are probably the two highest contenders. Over the past few years, as an awareness of financial protection has become more prevalent, for both consumers and businesses, the trust account protection method has become further explored, understood, and utilised as an efficient and secure method of protection in travel. Though this takes a little bit of understanding to ensure you are working with a trusted travel trust account provider that is running their trust account system properly (such as Protected Trust Services (PTS)), it is easily considered one of the most secure methods of financial protection in travel.
On the other hand, bond protection is widespread, used by many of the biggest travel providers, and has generally had wider spread awareness since the birth of the Package Travel Regulations. Because it is a protection method used by many, and especially used by some of the bigger travel businesses that you may recognise, this can easily seem like the option to go for. However, there is a big difference between bond and trust account protection, and what method will be right for your business can vary, so knowing the core difference is important before making a choice.
What is Bond Protection?
In short, a bond is similar to taking out a loan but on a much bigger scale. For businesses that may need to borrow more money than a bank can provide, a bond represents the collective loan of several investors to a single borrower. Many businesses may use bonds to fund the growth of their business, but as a financial protection method, it means that if the consumer, for whatever reason, needs a refund, that money will be provided through the bond.
These bonds can trade hands between individuals in some circumstances, but like a loan, they generally are issued with a maturity date when the monies must be paid back with a set interest rate.
Using bond protection as a chosen financial protection method allows for the money from to consumer to go directly to the travel business to be put back into the business, or to retain profits. If the consumer has an issue and needs money back, the bond covers this.
However, the danger of this form of financial protection could have a big effect on the longevity of the business. This was shown to its extreme during the Covid pandemic. As many consumers were cancelling holidays that they could no longer take and requesting refunds, many travel businesses that used bond protection or insurance protection were having to pay out of pocket for some of these refunds because of the sheer amount of money that was being returned. This caused many travel businesses to go out of business because they could no longer fund the business.
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So, then the question is: does trust account protection address this issue?
What is Trust Account Protection?
To put it simply, trust account protection consists of a secure account, run by an independent trustee that has no stake in the business of the account holder or the account user. This means that all monies that enter the trust account are looked after by the trustee, and only approved release from the account by the trustee. Because this independent trustee has no stakes in the travel business or the trust account holder, they can ensure the security of the account without any compromises through bias, investment, and more.
In a travel trust account system such as Protected Trust Services (PTS), the consumer to the travel business pays the money directly into the trust account. This money is separated and does not leave the trust account system unless approved by the independent trustee to either: pay the supplier, refund the consumer, or hand the money over to the travel business only once the consumer's holiday is complete.
The key difference to note here between the trust account protection method and the bond protection method is that when you protect your monies with trust, no money is borrowed. The money enters the trust account from the consumer, and remains there until it is required by the consumer, supplier, or can be released to the business at the end of the holiday. This means that if the consumer needs a refund, the business can request the release of funds, and the consumer will be returned the money that they paid without hassle.
As the trust account protection method does not release the monies to the business until the booking has seen its course, this means that the business will never have to pay out of pocket to refund a consumer. Once that money is with the business, it can be safely reinvested into the business without concern.
If a travel business acquires financial protection through the trust account system with PTS, this also means that those monies will go through daily reconciliation. This provides complete transparency for the business and the consumer, meaning that if your client wishes to know where their money is, you can tell them exactly where in the trust account it is down to the penny, so they can have complete peace of mind and trust that when they book a holiday with your business, their money is secure and protected in case of any incidents.
So, if you’d like to discuss consumer protection for travel companies further, please get in contact with one of Protected Trust Services’ (PTS) lovely staff members by calling?0207 190 9988?or emailing us at?[email protected]. Or, you can visit our?member support?and?travel trust account?pages to learn more about how we protect you.