Choosing the best debit order solution for your small business

Choosing the best debit order solution for your small business

Many organizations don’t know the many benefits of utilizing a debit order service to collect capital from their customers, much less which debit order system would be the best for their requirements.

Having dealt with many organizations payment collection procedures I will try and describe why you should be using debit order as preferred payment collection solution for your organization as well as which debit order method will be most suitable for your field and kind of clientele.

Starting with what a debit order is:

A debit order is an instruction that the bank account or even bank card holder provides a enterprise to collect capital straight from their banking account. The way in which a client gives this instruction is simply by completing a written or spoken (commonly telephonic) debit order mandate. Electronically signed mandates can become an option later on as PASA is looking at their use.

A debit order, as we refer to it in South Africa, may be referred to as a direct debit in numerous parts of the world. For more resources on direct debits please see the appropriate Wikipedia webpage.

In South Africa there is usually two kinds of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which can further be broken into Authenticated Early Debit Order (AEDO) plus Non-authenticated Early Debit Order (NAEDO).

EFT debit orders follow EDO debit orders if processed by way of the standard financial debit order batches. Both AEDO and NAEDO debit orders run in a very randomised manner before EFT debit orders and allow creditors an equal possibility to obtain cash from their consumers.

NAEDO debit orders were launched in 2006 because of a National Credit Act initiative and allow creditors to recover up to R5,000.00 in the most honest manner conceivable.

You should note that standard EFT debit orders allow for acquiring up to R500,000.00 per debit instruction.

EFTs are often more affordable than AEDOs and NAEDOs but do not include the ability to monitor customers account/credit card for as much as 32 days. If money would arrive in the account inside the tracking phase, all these funds would be reserved for collection from the party triggering the debit.

Some simple illustrations to clarify where EFT and NAEDO debit order collections will be employed:

1. An investment company desperate to collect an additional payment from one of their investors would almost certainly use an EFT debit order because the likelihood of the customer having available funds for collection is extremely high. The total to be collected might also often times surpass the R5,000.00 NAEDO limit and price of the collection would be a factor.

2. Insurance brokers recovering a monthly premium from one of their clients for funeral insurance would be better off using a NAEDO debit order run. The likelihood of this customer possessing funds available is rather small and monitoring will be beneficial to monitor the clients bank account for when cash do arrive (typically their monthly wage).

Any micro loan merchant would be better off utilising NAEDO since they deal with consumers who normally do not have cash obtainable within their bank accounts specifically on the standard debit collection days. It is rather evident as these persons may have a history of trying to get credit and would possibly have several debit orders to various creditors going off on the same day. It is because of this that the randomisation of NAEDO transactions could become a serious advantage of make certain each creditor posseses an equal chance of getting paid.

Alternatively just about any company may pick EFT as their chosen debit order approach as they sustain some type of leverage over their customer in the form of ending/suspending service in an effort to obtain payment. Service providers also tend not to supply any credit terms and payment is carried out on a month to month time frame.

I appreciate there are numerous situations and fringe conditions which could guarantee a service provider or creditor deciding to implement both EFT or EDO debit orders and will explore these circumstances in depth within my following post.

Before you choose a debit order processing service for your business, take a moment to learn more about naedo from a respected industry professional such as Debby.