Many companies are not aware of the benefits of using a debit order service to collect funds from their debtors, let alone which debit order technique will be the ideal for their requirements.
Having successfully tackled many companies payment collection strategies I am going to try to explain why you should be utilizing debit order as preferred payment collection method for your small business along with which debit order strategy is going to be most appropriate to your niche and kind of customers.
Lets start looking into what a debit order is:
A debit order is an instruction that a bank or credit card account holder provides a company to recover funds straight from their banking account. They method by which a client gives this instruction is simply by performing a written or spoken (generally telephonic) debit order mandate.
A debit order, as we refer to it in South Africa, is usually known as the direct debit in many parts of the world. To learn more about direct debits please visit the relevant Wikipedia page.
In South Africa there is commonly 2 kinds of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which can 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 using the standard banking debit order runs. Both AEDO and NAEDO debit orders run in a randomised manner before EFT debit orders and allow collectors an identical capability to collect funds from the consumers.
NAEDO debit orders were announced in 2008 due to a National Credit Act initiative and permit creditors to collect as much as R5,000.00 in the most fair manner achievable. It is important to be aware that regular EFT debit orders make provision for collecting anywhere up to R500,000.00 per debit instruction.
EFTs are generally more affordable 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 were to get to the account while in the tracking period, these funds could be reserved for collection by the party triggering the debit.
Some simple samples to clarify how EFT and NAEDO debit order collections would be used:
1. An investment company wishing to collect an additional contribution from one of their clients would almost certainly make use of an EFT debit order for reason the probability of the client having money handy for collection is incredibly high. The total amount to get collected would also often times go beyond the R5,000.00 NAEDO limit and cost of the collection could be a consideration.
2. Insurance brokerages acquiring a monthly premium from one of their clients for funeral cover would be best off employing a NAEDO debit order run. The odds of this customer having funds available is rather low and tracking will be helpful to monitor the customers account for when monies do turn up (normally their regular monthly salary).
Almost any micro loan provider would be best off utilizing NAEDO because they do business with customers who commonly do not have money available within their accounts especially over the normal debit collection periods. Nevertheless this is quite obvious as these individuals would have a record of applying for credit and would possibly have many debit orders to several loan providers going off on the same day. It is because of this that the randomisation of NAEDO orders could become an enormous benefit to make sure each creditor has got an equal possibility of being paid back.
On the flip side any service agency will in all probability select EFT for their desired debit order solution since they maintain some form of power over their client through ending/suspending service in order to obtain payment. Service providers also normally do not offer any credit conditions and payment is performed on a regular monthly basis.
I realize there are numerous scenarios and fringe cases which might warrant a service provider or creditor deciding to make use of either EFT or EDO debit orders and will look into these instances in more detail in my subsequent post.
Having successfully tackled many companies payment collection strategies I am going to try to explain why you should be utilizing debit order as preferred payment collection method for your small business along with which debit order strategy is going to be most appropriate to your niche and kind of customers.
Lets start looking into what a debit order is:
A debit order is an instruction that a bank or credit card account holder provides a company to recover funds straight from their banking account. They method by which a client gives this instruction is simply by performing a written or spoken (generally telephonic) debit order mandate.
A debit order, as we refer to it in South Africa, is usually known as the direct debit in many parts of the world. To learn more about direct debits please visit the relevant Wikipedia page.
In South Africa there is commonly 2 kinds of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which can 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 using the standard banking debit order runs. Both AEDO and NAEDO debit orders run in a randomised manner before EFT debit orders and allow collectors an identical capability to collect funds from the consumers.
NAEDO debit orders were announced in 2008 due to a National Credit Act initiative and permit creditors to collect as much as R5,000.00 in the most fair manner achievable. It is important to be aware that regular EFT debit orders make provision for collecting anywhere up to R500,000.00 per debit instruction.
EFTs are generally more affordable 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 were to get to the account while in the tracking period, these funds could be reserved for collection by the party triggering the debit.
Some simple samples to clarify how EFT and NAEDO debit order collections would be used:
1. An investment company wishing to collect an additional contribution from one of their clients would almost certainly make use of an EFT debit order for reason the probability of the client having money handy for collection is incredibly high. The total amount to get collected would also often times go beyond the R5,000.00 NAEDO limit and cost of the collection could be a consideration.
2. Insurance brokerages acquiring a monthly premium from one of their clients for funeral cover would be best off employing a NAEDO debit order run. The odds of this customer having funds available is rather low and tracking will be helpful to monitor the customers account for when monies do turn up (normally their regular monthly salary).
Almost any micro loan provider would be best off utilizing NAEDO because they do business with customers who commonly do not have money available within their accounts especially over the normal debit collection periods. Nevertheless this is quite obvious as these individuals would have a record of applying for credit and would possibly have many debit orders to several loan providers going off on the same day. It is because of this that the randomisation of NAEDO orders could become an enormous benefit to make sure each creditor has got an equal possibility of being paid back.
On the flip side any service agency will in all probability select EFT for their desired debit order solution since they maintain some form of power over their client through ending/suspending service in order to obtain payment. Service providers also normally do not offer any credit conditions and payment is performed on a regular monthly basis.
I realize there are numerous scenarios and fringe cases which might warrant a service provider or creditor deciding to make use of either EFT or EDO debit orders and will look into these instances in more detail in my subsequent post.
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Before choosing direct debit collections, be sure to check Steven Isaacs excellent resources on the best naedo system available for your business.
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