Many companies are not aware of the advantages of using a debit order service to get hold of funds from their customers, not to mention which debit order strategy is the best for their needs.
Having dealt with many companies payment collection strategies I'll attempt to explain why you should be utilizing debit order as favored payment collection method for your organization along with which debit order strategy will be most appropriate to your industry and type of customers.
We begin with what a debit order is:
A debit order is an instruction that the banking account or credit card owner provides a business to acquire capital straight from their banking account. The method by which an individual provides this instruction is simply by completing a written or verbal (normally telephonic) debit order mandate. Electronically signed mandates could become a possibility later on as PASA is looking at their use.
A debit order, like we relate to it in South Africa, can be referred to as a direct debit in most parts of the earth. For more resources on direct debits please see the relevant Wikipedia website.
In South Africa there are actually usually two kinds of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which may further be broken into Authenticated Early Debit Order (AEDO) and also Non-authenticated Early Debit Order (NAEDO).
EFT debit orders follow EDO debit orders when processed by way of the normal financial debit order batches. Both AEDO and NAEDO debit orders run in a very randomised fashion ahead of EFT debit orders and enable creditors the same possibility to acquire funds from their debtors.
NAEDO debit orders were introduced in 2006 as a result of National Credit Act initiative and enable creditors to collect as much as R5,000.00 in the most honest manner achievable.
It is very important to remember that normal EFT debit orders make provision for obtaining approximately R500,000.00 per debit instruction.
EFTs are typically less expensive than AEDOs and NAEDOs but don't include the ability to track an individual account/credit card for up to 32 days. If funds were to arrive in the account during the monitoring phase, all these funds can be reserved for collection by way of the party initiating the debit.
Some short cases to clarify exactly where EFT and NAEDO debit order collections would be utilised:
1. An investment company needing to collect yet another payment from one of their investors would most definitely make use of an EFT debit order because the possibilities of the investor having funds available for collection is extremely high. The amount to get collected would also many times exceed the R5,000.00 NAEDO limit and price of the collection would be a point to consider.
2. Insurance brokers recovering a monthly premium from one of their customers for funeral protection would be better off utilizing a NAEDO debit order run. The likelihood of this client having funds available is pretty small and tracking will likely be helpful to monitor the customers account for if money do arrive (typically their monthly wage).
Any micro lender would be better off utilising NAEDO since they contend with consumers who normally do not have money obtainable in their bank accounts especially around the regular debit collection dates. It is quite apparent as these individuals would've a record of obtaining credit and may have several debit orders to numerous collectors going off on the same day. It's because of this that the randomisation of NAEDO transactions could become an essential advantage of guarantee each creditor posseses an identical probability of being paid back.
On the other hand virtually any service provider will likely pick EFT for their desired debit order technique since they preserve some kind of influence over their consumer by means of ending/suspending service in an effort to acquire payment. Service providers also tend not to give any credit conditions and repayment is performed on a month to month basis.
I understand there are several scenarios and fringe conditions which may justify a service provider or creditor opting to implement either EFT or EDO debit orders but will explore all these circumstances in greater detail within my following post.
Having dealt with many companies payment collection strategies I'll attempt to explain why you should be utilizing debit order as favored payment collection method for your organization along with which debit order strategy will be most appropriate to your industry and type of customers.
We begin with what a debit order is:
A debit order is an instruction that the banking account or credit card owner provides a business to acquire capital straight from their banking account. The method by which an individual provides this instruction is simply by completing a written or verbal (normally telephonic) debit order mandate. Electronically signed mandates could become a possibility later on as PASA is looking at their use.
A debit order, like we relate to it in South Africa, can be referred to as a direct debit in most parts of the earth. For more resources on direct debits please see the relevant Wikipedia website.
In South Africa there are actually usually two kinds of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which may further be broken into Authenticated Early Debit Order (AEDO) and also Non-authenticated Early Debit Order (NAEDO).
EFT debit orders follow EDO debit orders when processed by way of the normal financial debit order batches. Both AEDO and NAEDO debit orders run in a very randomised fashion ahead of EFT debit orders and enable creditors the same possibility to acquire funds from their debtors.
NAEDO debit orders were introduced in 2006 as a result of National Credit Act initiative and enable creditors to collect as much as R5,000.00 in the most honest manner achievable.
It is very important to remember that normal EFT debit orders make provision for obtaining approximately R500,000.00 per debit instruction.
EFTs are typically less expensive than AEDOs and NAEDOs but don't include the ability to track an individual account/credit card for up to 32 days. If funds were to arrive in the account during the monitoring phase, all these funds can be reserved for collection by way of the party initiating the debit.
Some short cases to clarify exactly where EFT and NAEDO debit order collections would be utilised:
1. An investment company needing to collect yet another payment from one of their investors would most definitely make use of an EFT debit order because the possibilities of the investor having funds available for collection is extremely high. The amount to get collected would also many times exceed the R5,000.00 NAEDO limit and price of the collection would be a point to consider.
2. Insurance brokers recovering a monthly premium from one of their customers for funeral protection would be better off utilizing a NAEDO debit order run. The likelihood of this client having funds available is pretty small and tracking will likely be helpful to monitor the customers account for if money do arrive (typically their monthly wage).
Any micro lender would be better off utilising NAEDO since they contend with consumers who normally do not have money obtainable in their bank accounts especially around the regular debit collection dates. It is quite apparent as these individuals would've a record of obtaining credit and may have several debit orders to numerous collectors going off on the same day. It's because of this that the randomisation of NAEDO transactions could become an essential advantage of guarantee each creditor posseses an identical probability of being paid back.
On the other hand virtually any service provider will likely pick EFT for their desired debit order technique since they preserve some kind of influence over their consumer by means of ending/suspending service in an effort to acquire payment. Service providers also tend not to give any credit conditions and repayment is performed on a month to month basis.
I understand there are several scenarios and fringe conditions which may justify a service provider or creditor opting to implement either EFT or EDO debit orders but will explore all these circumstances in greater detail within my following post.
About the Author:
Before you choose a debit order system for your business, take a moment to learn more about the NAEDO facility from a respected industry professional such as Steven.
