Discovering the right debit order strategy

Companies are not aware of the advantages of utilizing a debit order service to recover funds from their debtors, let alone which debit order technique may be the ideal for their needs.

Having dealt with companies payment collection strategies I will try and explain why you must be using debit order as best payment collection solution to your corporation along with which debit order approach would be suitable to your market and type of client base.

We begin with what a debit order is:

A debit order is an instruction that the bank or credit card account holder gives a company to recover monies straight from their banking account. They manner in which a client presents this instruction is by filling out a written or spoken (commonly telephonic) debit order mandate.

A debit order, as we make reference to it in South Africa, is usually known as the direct debit in several areas of the globe. To learn more about direct debits please visit the relevant Wikipedia web site.

In South Africa there is generally 2 kinds of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) that may further be split into Authenticated Early Debit Order (AEDO) as well as Non-authenticated Early Debit Order (NAEDO). EFT debit orders follow EDO debit orders when processed through the standard financial debit order runs. Both AEDO and NAEDO debit orders run in a randomised manner before EFT debit orders and give creditors an identical opportunity to collect funds from the customers.

NAEDO debit orders were started in 2008 because of a National Credit Act initiative and enable creditors to recover as much as R5,000.00 in the most fair way achievable. It is important to be aware that normal EFT debit orders allow for collecting anywhere up to R500,000.00 per debit instruction.

EFTs are usually less expensive than AEDOs and NAEDOs but do not include the capability to track a customer account/credit card for up to 32 days. If funds would arrive in the account inside the tracking period, these monies would be reserved for collection by the party initiating the debit.

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

1. An investment business wishing to collect an additional payment from one of their investors would most likely use an EFT debit order for reason the likelihood of the client having available funds for collection is particularly high. The total to get collected would also many times exceed the R5,000.00 NAEDO limit and cost of the collection would be a consideration.

2. Insurance brokers collecting a monthly premium from one of their consumers for funeral cover might be best off choosing a NAEDO debit order run. The odds of this client having money handy is pretty low and tracking is going to be helpful to monitor the consumers account for when funds do arrive (usually their regular monthly paycheck).

Just about any micro loan company would be best off implementing NAEDO since they deal with clients who usually do not have money available within their accounts especially around the typical debit collection dates. Nevertheless this is quite obvious since these people should have a history of obtaining credit and might have several debit orders to numerous loan providers going off on the same day. It’s because of this that the randomisation of NAEDO orders could become a major benefit to make sure each creditor has got an identical possibility of being paid.

Conversely any service provider will likely choose EFT as their favored debit order method as they maintain some kind of influence over their customer through ending/suspending service as a way to obtain payment. Service providers also tend not to offer any credit terms and payment is performed on a month to month basis.

I realize there are several scenarios and border cases that might cause a service provider or creditor deciding to utilize either EFT or EDO debit orders and definitely will look into these instances in more detail in my upcoming post.

Before choosing debit order collection, be sure to check Tim Smarts excellent resources on the best naedo service available for your business.