The benefits of using debit orders to collect funds

Using debit order collections to proactively fetch funds from your debtors obviously holds many benefits over waiting for them to get around to paying you.

Lets look into some of the benefits of using debit orders to collect funds:

Increase Cash Flow

When you control when you debit your debtors bank accounts you gain control over your cash flow. Why wait on your debtors to make payment when they feel like it. Get paid when payment is due and achieve more with your business.

Eliminate Cash Risk

Receiving cash is risky. Moving cash around and handling cash is expensive. Debit orders eliminate the need to deal with cash as all debit order processes take place electronically.

Reduce Bank Fees

Debit orders are a more cost effective solution than any traditional means of collecting and making payment. You and your debtors save. Cash and cheques are expensive and unreliable. Credit card transactions are plagued with fraud and expensive merchant fees. Switch to a debit order solution and enjoy the benefits of easier and more cost effective payments.

Better Budget Planning

When using a debit order service you initiate the instruction to debit your debtors bank account. You know when you will receive the funds debited with complete certainty and can therefore budget and plan your expenses better. Debit order places you in control.

Automate Debtors Process

The flexibility of the debit order system allows for easy automation of the entire debtors process. Request payment, reconcile and take action.

You can choose to integrate the debit order service with your existing software or accounting solution or make use of our payment system and billing system.

It's clear that the use of a debit order solution holds many benefits over traditional and more costly means of being paid. Get in the driving seat today and steer your business to success with our debit order solutions.

If you wish to obtain the best debit order pricing or for more information please visit Direct Debit.

Using AEDO, NAEDO or EFT debits to collect funds

In order to understand which debit order method to make use of you will first need to have an understanding of the differences in the three major collection methods: Authenticated Early Debit Order (AEDO), Non-authenticated Early Debit Order (NAEDO) and Electronic Funds Transfer (EFT).

EFT Service

Lets start with the oldest and most widely used method, EFT. The EFT Service is provided by numerous participating banks (eg. ABSA, FNB, Nedbank and Standard Bank), which enables companies to process payments entirely by computerised means. The service can be used both for collecting payments from clients (EFT debits) and for making payments (EFT credits). Payments can be made for salaries, creditors, wages etc. Your business can lodge payments and collections through their bank to all participating banks.

Transacting via the EFT service

Both debit and credits may be processed through the system.

The following criteria applies:

• Credits may be processed against current, savings and transmission accounts, and under certain circumstances, bonds, loans and subscription share accounts. Transactions greater or equal to R5 million rand will not be permitted and will be homed back with the reason that it exceeds industry imposed limits. Such transactions should be routed through the real time line and not the operator.
• Debits may be processed against current, certain savings and transmission accounts. Debits to bond and subscription share accounts are not allowed. A maximum value limit of R500,000 per transaction is in place.
• The breaking up or splitting of transactions to avoid limit restrictions are not permitted.

Coverage of the EFT service

The EFT service covers all types of accounts permitted by the EFT Service rules and which are held in the Common Monetary Area by participating banks. A list of participating banks can be obtained on application.

NAEDO Service

The NAEDO Service is provided by participating banks (eg. ABSA, FNB, Nedbank and Standard Bank), which enables companies and other bodies to process payments entirely by computerised means. The service can be used for collecting payments from clients (debits). NAEDO does not make provision for a credit facility and EFT credit will be used if required.

NAEDO payment instructions support multiple presentments thereof. If these are unpaid after the first presentment, credit tracking may be invoked. Credit tracking is optional and if selected, the unpaid NAEDO payment instruction will automatically be represented during the afternoon of the same business day and for the consecutive amount of days selected, twice a day, on business days until payment is received or until expiry of the tracking period selected.

All NAEDO payment instructions, are randomised giving all Users an equal opportunity of receiving payment and are processed as close as possible after salary credits are paid into the bank accounts of Customers in the early morning.

Transacting via the NAEDO service

Only debits may be processed through the system. The following criteria will apply:

• Debits may be processed against current, certain savings and transmission accounts. Debits to bond and subscription share accounts are not allowed.
• A maximum value limit of R5 000 per transaction is in place. The splitting of transactions to avoid the limit restrictions is not permitted.
• All NAEDO payment instructions must be uniquely identifiable by the Agreement Reference and payment cycle.

Coverage of the NAEDO service

The NAEDO service covers all types of accounts permitted by the NAEDO Service rules and which are held in the Common Monetary Area by participating banks. A list of participating banks can be obtained on application.

AEDO Service

The AEDO service is similar to NAEDO in all respects, but cannot be easily disputed as the transaction is initiated with the account holders card and pin. AEDO is an effective solution to mitigate collection risk and defaults on payment. Contact us if you are interested in the AEDO service.

Conclusion

Examples of where EFT and NAEDO services can be used is given in my previous article. The AEDO service may effectively be used for collection in any situation when NAEDO may have been utilized.

I will be exploring the legal requirements and implications of these three payment methods in a future article. If you wish to obtain an debit order quotation or for more information please visit our website at http://www.directdebit.co.za.

Choosing the best debit order solution

Many businesses are not aware of the benefits of making use of a debit order service to collect funds from their debtors, let alone which debit order solution would be the best for their needs.

Having dealt with many businesses payment collection methods I will try and explain why you should be using debit order as preferred payment collection method for your business as well as which debit order method would be most appropriate for your industry and type of client base.

Lets start with what a debit order is:

A debit order is an instruction that a bank or credit card account holder provides a business to collect funds directly from their bank account. They way in which a client gives this instruction is by completing a written or verbal (usually telephonic) debit order mandate.

A debit order, as we refer to it in South Africa, may be referred to as a direct debit in many parts of the world. For more information on direct debits please see the relevant Wikipedia page.

In South Africa there are commonly two types of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which may further be broken into Authenticated Early Debit Order (AEDO) as well as Non-authenticated Early Debit Order (NAEDO).

EFT debit orders run after EDO debit orders when processed via the standard banking debit order runs. Both AEDO and NAEDO debit orders run in a randomised manner before EFT debit orders and allow creditors an equal chance to collect funds from their debtors.

NAEDO debit orders were launched in 2006 due to a National Credit Act initiative and allow creditors to collect up to R5,000.00 in the most fair manner possible.

It is important to note that regular EFT debit orders make provision for collecting up to R500,000.00 per debit instruction.

EFTs are generally more cost effective than AEDOs and NAEDOs but do not include the ability to track a client account/credit card for up to 32 days. If funds were to arrive in the account within the tracking period, these funds would be reserved for collection by the party initiating the debit.

Some brief examples to clarify where EFT and NAEDO debit order collections would be used:

1. An investment company wishing to collect an additional contribution from one of their investors would most definitely make use of an EFT debit order as the likelihood of the client having funds available for collection is very high. The amount to be collected would also many times exceed the R5,000.00 NAEDO limit and cost of the collection would be a factor.

2. Insurance brokerages collecting a monthly premium from one of their clients for funeral cover would be best off making use of a NAEDO debit order run. The likelihood of this client having funds available is quite low and tracking will be useful to keep tabs on the clients account for when funds do arrive (usually their monthly salary).

Any micro lender would be best off making use of NAEDO as they deal with clients who usually do not have money available within their accounts especially on the standard debit collection dates. This is quite obvious as these individuals would have a history of applying for credit and would possibly have multiple debit orders to various creditors going off on the same day. It is because of this that the randomisation of NAEDO transactions may become a major benefit to ensure each creditor has an equal chance of being paid.

Conversely any service provider will likely choose EFT as their preferred debit order method as they maintain some form of leverage over their client in the form of ending/suspending service in order to obtain payment. Service providers also usually do not offer any credit terms and payment is done on a month to month basis.

I realise there are many situations and edge cases which may warrant a service provider or creditor choosing to make use of either EFT or EDO debit orders and will delve into these situations in more detail in my next post.

If you wish to obtain an unbiased debit order quotation or for more information please visit our website at http://www.directdebit.co.za.