The standard deposit model is the model that most experience and travel operators use. The buyer pays a deposit, typically ten to thirty percent of the total price, at the point of booking, and the balance at a fixed point before the experience date, typically sixty to ninety days in advance.
The deposit goes into the operator’s account and the operator uses it as operating capital while managing the refund obligation as a liability. The buyer has a contractual right to a refund under specific conditions, but the contractual right is only as good as the financial health of the operator who owes it.
The escrow model replaces the contractual right with the structural protection. The buyer’s money does not go to the operator. It goes to an independent escrow account managed by a third party whose mandate is to hold the funds and release them only when the agreed conditions are met.
The operator cannot access the funds early. The buyer cannot withdraw them unilaterally outside the agreed conditions. The funds are in a protected state, held by a neutral party, until the transaction conditions determine their disposition.
The Practical Difference
The practical difference between the two models is visible in the scenario where something goes wrong before the experience date. In the deposit model, the buyer who is owed a refund by an operator in financial difficulty is a creditor.
The recovery depends on the insolvency process and the asset position of the insolvent estate. The travel sector has produced enough high-profile operator failures to make this a scenario that the buyer who is paying a significant amount in advance should take seriously.
In the escrow model, the buyer who is owed a refund under the agreed conditions is the beneficiary of the escrow account, not a creditor of the operator. The funds are in the account, not in the operator’s estate. The escrow agreement specifies the conditions under which the funds are returned to the buyer. The recovery does not depend on the insolvency process because the funds were never in the operator’s estate to become part of it.
The Naora programme uses the escrow model because the offshore sailing membership is the kind of financial commitment that this level of structural protection is appropriate for. The member who books a Naora leg two years in advance and pays the leg fee at booking deserves to know that the money is not in Naora’s operating account funding the operational expenses of the two years between the booking and the boarding. It is in the escrow account, protected, until sixty days before the leg departs.
