Many organisations do not know of the many advantages of using a debit order service to collect monies from their customers, not to mention which debit order strategy would be the suitable for their needs.
Having sorted out businesses payment collection methods I will try and explain why you need to be using debit order as best payment collection method for your organization along with which debit order method will be suitable for your marketplace and type of customers.
Lets start looking into what a debit order is:
A debit order is an instruction that the bank or credit card account owner provides a organization to collect monies straight from their personal account. They way in which a customer gives this instruction is simply by filling out a written or verbal (often telephonic) debit order mandate.
A debit order, as we label it in South Africa, is often known as the direct debit in several parts of the planet. For more information on direct debits please see the appropriate Wikipedia website.
In South Africa there are generally two types of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which may additionally 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 via the standard financial debit order runs. Both AEDO and NAEDO debit orders run in a very randomised manner before EFT debit orders and allow creditors an identical chance to collect funds from the customers.
NAEDO debit orders were announced in 2008 due to a National Credit Act initiative and permit lenders to acquire anywhere up to R5,000.00 in the most fair way possible. It is important to be aware that normal EFT debit orders make provision for collecting up to R500,000.00 per debit instruction.
EFTs are often less expensive than AEDOs and NAEDOs but do not include the ability to track a customer account/credit card for as much as 32 days. If monies would arrive in the account within the tracking period, these monies is going to be restricted for collection by the party triggering the debit.
Some simple illustrations to explain how EFT and NAEDO debit order collections can be used:
1. An investment business wanting to collect an additional contribution from one of their investors would almost certainly make use of an EFT debit order because the likelihood of the client having funds available for collection is extremely high. The total amount to get collected would also more often than not go beyond the R5,000.00 NAEDO limit and cost of the collection could be a factor.
2. Insurance brokers acquiring a monthly payment from one of their clients for funeral cover might be best off implementing a NAEDO debit order run. The probability of this client having available funds is pretty low and tracking will probably be useful to keep tabs on the customers account for when monies do turn up (typically their monthly wage).
Almost any micro loan provider would be better off using NAEDO since they deal with customers who tend not to have funds available within their accounts especially around the normal debit collection periods. This is certainly quite self evident as these people would have a record of applying for credit and might have several debit orders to numerous creditors going off on the same day. It's because of this that the randomisation of NAEDO transactions can be a major benefit to ensure each creditor has got an identical probability of being paid back.
In contrast any service provider will likely pick EFT for their desired debit order method since they maintain some sort of power over their customer in the form of ending/suspending service in order to obtain payment. Service providers also ordinarily do not offer any credit terms and payment is made on a month to month basis.
I realize there are many scenarios and fringe cases which can justify a service provider or creditor opting to utilize either EFT or EDO debit orders and will eventually look into these conditions in greater detail during my subsequent posting.
Having sorted out businesses payment collection methods I will try and explain why you need to be using debit order as best payment collection method for your organization along with which debit order method will be suitable for your marketplace and type of customers.
Lets start looking into what a debit order is:
A debit order is an instruction that the bank or credit card account owner provides a organization to collect monies straight from their personal account. They way in which a customer gives this instruction is simply by filling out a written or verbal (often telephonic) debit order mandate.
A debit order, as we label it in South Africa, is often known as the direct debit in several parts of the planet. For more information on direct debits please see the appropriate Wikipedia website.
In South Africa there are generally two types of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which may additionally 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 via the standard financial debit order runs. Both AEDO and NAEDO debit orders run in a very randomised manner before EFT debit orders and allow creditors an identical chance to collect funds from the customers.
NAEDO debit orders were announced in 2008 due to a National Credit Act initiative and permit lenders to acquire anywhere up to R5,000.00 in the most fair way possible. It is important to be aware that normal EFT debit orders make provision for collecting up to R500,000.00 per debit instruction.
EFTs are often less expensive than AEDOs and NAEDOs but do not include the ability to track a customer account/credit card for as much as 32 days. If monies would arrive in the account within the tracking period, these monies is going to be restricted for collection by the party triggering the debit.
Some simple illustrations to explain how EFT and NAEDO debit order collections can be used:
1. An investment business wanting to collect an additional contribution from one of their investors would almost certainly make use of an EFT debit order because the likelihood of the client having funds available for collection is extremely high. The total amount to get collected would also more often than not go beyond the R5,000.00 NAEDO limit and cost of the collection could be a factor.
2. Insurance brokers acquiring a monthly payment from one of their clients for funeral cover might be best off implementing a NAEDO debit order run. The probability of this client having available funds is pretty low and tracking will probably be useful to keep tabs on the customers account for when monies do turn up (typically their monthly wage).
Almost any micro loan provider would be better off using NAEDO since they deal with customers who tend not to have funds available within their accounts especially around the normal debit collection periods. This is certainly quite self evident as these people would have a record of applying for credit and might have several debit orders to numerous creditors going off on the same day. It's because of this that the randomisation of NAEDO transactions can be a major benefit to ensure each creditor has got an identical probability of being paid back.
In contrast any service provider will likely pick EFT for their desired debit order method since they maintain some sort of power over their customer in the form of ending/suspending service in order to obtain payment. Service providers also ordinarily do not offer any credit terms and payment is made on a month to month basis.
I realize there are many scenarios and fringe cases which can justify a service provider or creditor opting to utilize either EFT or EDO debit orders and will eventually look into these conditions in greater detail during my subsequent posting.
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Before selecting a debit order company, be sure to check Steven Isaacs excellent resources on the best debit order system available for your business.
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