Discovering the right debit order technique

May 25, 2012 · Posted in Finance 

Many companies do not know of the many advantages of making use of a debit order service to receive funds from their customers, not to mention which debit order solution will be the ideal for their needs.

Having sorted out many businesses payment collection methods I am going to attempt to explain why you should be utilizing debit order as favourite payment collection method for your corporation and also which debit order approach is going to be ideal to your marketplace and kind of clientele.

We begin looking into what a debit order is:

A debit order is an instruction that a bank or credit card account owner provides a business to collect funds straight from their banking account. They manner in which a customer presents this instruction is simply by performing a written or spoken (normally telephonic) debit order mandate.

A debit order, as we label it in South Africa, is usually referred to as a direct debit in many areas of the world. For more information on direct debits please visit the appropriate Wikipedia article.

In South Africa there are actually generally two kinds of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) that may further be broken into Authenticated Early Debit Order (AEDO) and Non-authenticated Early Debit Order (NAEDO). EFT debit orders run after EDO debit orders when processed through the standard banking debit order runs. Both AEDO and NAEDO debit orders run in a very randomised manner before EFT debit orders and enable creditors an equal capability to collect monies from the customers.

NAEDO debit orders were introduced in 2008 because of a National Credit Act initiative and enable creditors to acquire as much as R5,000.00 in the most fair manner achievable. You should be aware that regular EFT debit orders make allowances for collecting up to R500,000.00 per debit instruction.

EFTs are in general more cost effective than AEDOs and NAEDOs but don’t include the ability to track a customer account/credit card for as much as 32 days. If monies would get to the account within the tracking period, these funds could be reserved for collection by the party initiating the debit.

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

1. An investment corporation wanting to collect an additional payment from one of their investors would most likely use an EFT debit order on the grounds that the probability of the customer having funds available for collection is very high. The total to be collected would also many times go beyond the R5,000.00 NAEDO limit and cost of the collection might be a factor.

2. Insurance brokerages collecting a monthly premium from one of their customers for funeral cover would be best off utilizing a NAEDO debit order run. The probability of this consumer having money handy is quite low and tracking will probably be useful to keep tabs on the clientele account for when monies do turn up (typically their monthly earnings).

Virtually any micro loan company would be best off implementing NAEDO since they deal with customers who usually do not have cash available within their accounts especially around the standard debit collection dates. This is certainly quite self evident as these individuals probably have a history of applying for credit and would possibly have many debit orders to numerous creditors going off on the same day. It’s because of this that the randomisation of NAEDO orders can be a big help to ensure each creditor has got an identical chance of being paid.

Conversely any service provider will likely pick EFT as their desired debit order method since they maintain a certain amount of control over their client through ending/suspending service as a way to obtain payment. Service providers also tend not to offer any credit terms and payment is made on a regular monthly basis.

I understand there are several circumstances and border cases which can merit a service provider or creditor opting to make use of either EFT or EDO debit orders and definitely will look into these situations in greater detail in my subsequent blog post.

Before selecting a debit order solution, be sure to check Deb Odres excellent resources on the best debit order companies available for your business.

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