Key takeaways
- A good account structure starts by separating money by purpose, not by opening as many accounts as a template specifies.
- Booking deposits and down payments are an obligation to buyers. They should be kept separate and tightly controlled even if no escrow system is used.
- The DSRA, the tax reserve and the FF&E reserve reduce the cash that is actually available, so they must be built into the funding plan from the feasibility stage.
Why hotels need separate accounts
Hotel and mixed-use businesses have a high turnover of cash. If a single account handles all receipts and payments, problems arise once the project expands into branded residences or takes on a construction loan: compliance issues, covenant breaches and buyers' money being used for the wrong purpose.
- Compliance: bank terms and contracts often require the accounts to be separated.
- Discipline: prevents money from being used for the wrong purpose.
- Transparency: auditors, creditors and buyers can trace the flow of money.
- Risk mitigation: reduces the risk from a problem with any one account or bank.
The 7-account structure
1. Operating Account
- Purpose: day-to-day receipts and payments
- Bank: convenient for daily cash deposits
- Example balance target: 3–6 months of OpEx
- Inflows: room revenue, F&B, spa, banquet and rental pool
- Outflows: salaries, suppliers, utilities, marketing and management fee
- Rule: cash above the target must be swept in line with policy.
2. Project Deposit / Escrow Account
Used to receive booking deposits, contract deposits and down payments for branded residences.
The legislation on conditional money receipt businesses treats escrow as a voluntary service. A project should check what its sale agreements and the relevant laws require, and should not claim that escrow is mandatory without a basis.
- Bank: a bank or agent providing the service within the legal framework
- Currency: THB and foreign currencies, according to the terms of receipt
- Signatories: joint signing, or release conditions that can be verified
- Outflows: according to defined milestones
Example milestone release: foundations complete 20%, structure complete 30%, MEP complete 25% and handover 25%
- Must not be used to pay dividends or to buy new land.
- Refund terms and the order of claims if the project fails must be set from the contracts and the law. Do not assume that buyers have priority rights.
3. Construction Disbursement Account
- Receives each drawdown tranche and pays out according to progress
- Uses the construction lender's bank
- Drawn against the QS certificate and the Lender's Engineer's inspection
- The lender may suspend drawdown when costs exceed the terms of the agreement.
- Must not be used outside the scope of the construction contract.
4. Debt Service Reserve Account (DSRA)
- Sets aside funds for debt repayment when EBITDA is low
- Example required balance: 6 months of annual debt service
- Usually a pledged account
- Example release condition: DSCR of at least 1.5x for 4 consecutive quarters reduces the requirement to 3 months
The DSRA is restricted cash, so equity and funding sources must be sufficient to cover it.
5. Tax Reserve Account
- VAT: reserve from net output VAT after deducting input VAT
- WHT: reserve the amounts withheld from payees
- CIT: based on the profit estimate, paid under PND 51 and PND 50
- SBT of 3.3% on qualifying real estate sales
- Land and building tax, and local taxes and fees
Outflows follow the deadlines for PP 30, PND 50, 51, 53, 54 and other relevant returns.
6. FF&E Reserve Account
Sets aside money to replace furniture and equipment in line with the HMA or the owner's standards. Example reserve rates: years 1–2 at 1%, years 3–4 at 2%, and year 5 onwards at 3–4% of total revenue.
- Year 5: soft refurbishment
- Year 10: major refurbishment
- Year 15: full renovation
If money is not set aside from the start, the refurbishment may require additional borrowing or an equity call, which affects the DSCR.
7. FX / Foreign Currency Account
- Receives and pays foreign currency without converting each time
- Used for imported items such as materials and FF&E
- Use a forward as the payment date approaches
- No speculation, and set a holding cap if there is no hedge
- Comply with the Bank of Thailand (BOT) foreign exchange control rules
Summary table
| # | Account type | Currency | Example criteria | Objective |
|---|---|---|---|---|
| 1 | Operating | THB | 3–6 months of OpEx | Day-to-day receipts and payments |
| 2 | Project Deposit / Escrow | THB / FX | In line with obligations to buyers | Separates booking deposits and down payments |
| 3 | Construction Disbursement | THB | Per drawdown | Pays per milestone |
| 4 | DSRA | THB | Per the loan agreement | Debt service reserve |
| 5 | Tax Reserve | THB | Per tax liabilities | Tax reserve |
| 6 | FF&E Reserve | THB | Per HMA / policy | Equipment replacement |
| 7 | FX | USD/EUR/SGD | Per actual expenditure | Currency management |
Cash Flow Waterfall
- Revenue goes into the operating account
- Transfer to the tax reserve
- Top up the DSRA if it is below the threshold
- Transfer to the FF&E reserve
- Balance remaining in the operating account per target
- Surplus is invested short term or paid out per shareholder policy
Effect on free cash flow
Money in the project deposit account, the DSRA, the tax reserve and the FF&E reserve should not be counted as free cash. The share of restricted cash varies widely with the project structure, so it should be calculated from the actual contracts and financial plan, and equity and the working capital facility should be set from the feasibility stage.
Conclusion
Account structure is a matter of financial discipline, not convenience. It should be designed together with the loan terms, the sale agreements, legal advisers and tax from the financial modelling stage, so that every pot of money has an owner, conditions and a responsible person who can be verified.