Many organisations have no idea of the advantages of making use of a debit order service to receive monies from their consumers, let alone which debit order strategy would be the ideal for their needs.
Having successfully tackled companies payment collection methods I'll try and explain why you must be utilising debit order as preferred payment collection solution to your organization as well as which debit order process will be most appropriate to your marketplace and type of customer base.
Lets start with what a debit order is:
A debit order is an instruction that a bank or credit card account holder provides a organization to collect funds directly from their personal account. They way in which a customer gives this instruction is simply by performing a written or spoken (typically telephonic) debit order mandate.
A debit order, as we label it in South Africa, is often known as the direct debit in numerous areas of the planet. To learn more about direct debits please see the appropriate Wikipedia page.
In South Africa there's generally two types of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which can further be broken into Authenticated Early Debit Order (AEDO) as well as Non-authenticated Early Debit Order (NAEDO). EFT debit orders follow EDO debit orders when processed using the standard financial debit order runs. Both AEDO and NAEDO debit orders run in a very randomised manner before EFT debit orders and give lenders an equal capability to collect monies from the customers.
NAEDO debit orders were started in 2008 due to a National Credit Act initiative and enable lenders to acquire up to R5,000.00 in the most fair manner achievable. It is important to observe that regular EFT debit orders make provision for collecting up to R500,000.00 per debit instruction.
EFTs are typically less expensive than AEDOs and NAEDOs but don't include the ability to track a persons account/credit card for as much as 32 days. If monies were to arrive in the account within the tracking period, these funds could be restricted for collection by the party initiating the debit.
Some short examples to clarify how EFT and NAEDO debit order collections can be used:
1. An investment business wishing to collect an additional contribution from one of their clients would almost certainly make use of an EFT debit order because the probability of the customer having money handy for collection is particularly high. The total to get collected would also often times surpass the R5,000.00 NAEDO limit and cost of the collection could be a factor.
2. Insurance brokerages acquiring a monthly payment from one of their consumers for funeral cover would be better off utilising a NAEDO debit order run. The probability of this customer having money handy is reasonably low and tracking will probably be useful to monitor the customers account for when monies do arrive (normally their regular monthly earnings).
Just about any small lender would be best off using NAEDO as they deal with customers who tend not to have cash available within their accounts especially around the typical debit collection days. This is quite self evident as these people would have a record of seeking credit and would possibly have several debit orders to various loan providers going off on the same day. It's because of this that the randomisation of NAEDO orders can be a major benefit to make sure each creditor has got an equal probability of being compensated.
Conversely any service agency will in all probability select EFT as their preferred debit order procedure because they maintain some form of leverage over their customer by means of ending/suspending service in order to obtain payment. Service providers also will not offer any credit terms and payment is done on a month-to-month basis.
I realise there are numerous scenarios and fringe cases which might cause a service provider or creditor selecting to implement either EFT or EDO debit orders and definitely will explore these scenarios in depth in my upcoming blog post.
Having successfully tackled companies payment collection methods I'll try and explain why you must be utilising debit order as preferred payment collection solution to your organization as well as which debit order process will be most appropriate to your marketplace and type of customer base.
Lets start with what a debit order is:
A debit order is an instruction that a bank or credit card account holder provides a organization to collect funds directly from their personal account. They way in which a customer gives this instruction is simply by performing a written or spoken (typically telephonic) debit order mandate.
A debit order, as we label it in South Africa, is often known as the direct debit in numerous areas of the planet. To learn more about direct debits please see the appropriate Wikipedia page.
In South Africa there's generally two types of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which can further be broken into Authenticated Early Debit Order (AEDO) as well as Non-authenticated Early Debit Order (NAEDO). EFT debit orders follow EDO debit orders when processed using the standard financial debit order runs. Both AEDO and NAEDO debit orders run in a very randomised manner before EFT debit orders and give lenders an equal capability to collect monies from the customers.
NAEDO debit orders were started in 2008 due to a National Credit Act initiative and enable lenders to acquire up to R5,000.00 in the most fair manner achievable. It is important to observe that regular EFT debit orders make provision for collecting up to R500,000.00 per debit instruction.
EFTs are typically less expensive than AEDOs and NAEDOs but don't include the ability to track a persons account/credit card for as much as 32 days. If monies were to arrive in the account within the tracking period, these funds could be restricted for collection by the party initiating the debit.
Some short examples to clarify how EFT and NAEDO debit order collections can be used:
1. An investment business wishing to collect an additional contribution from one of their clients would almost certainly make use of an EFT debit order because the probability of the customer having money handy for collection is particularly high. The total to get collected would also often times surpass the R5,000.00 NAEDO limit and cost of the collection could be a factor.
2. Insurance brokerages acquiring a monthly payment from one of their consumers for funeral cover would be better off utilising a NAEDO debit order run. The probability of this customer having money handy is reasonably low and tracking will probably be useful to monitor the customers account for when monies do arrive (normally their regular monthly earnings).
Just about any small lender would be best off using NAEDO as they deal with customers who tend not to have cash available within their accounts especially around the typical debit collection days. This is quite self evident as these people would have a record of seeking credit and would possibly have several debit orders to various loan providers going off on the same day. It's because of this that the randomisation of NAEDO orders can be a major benefit to make sure each creditor has got an equal probability of being compensated.
Conversely any service agency will in all probability select EFT as their preferred debit order procedure because they maintain some form of leverage over their customer by means of ending/suspending service in order to obtain payment. Service providers also will not offer any credit terms and payment is done on a month-to-month basis.
I realise there are numerous scenarios and fringe cases which might cause a service provider or creditor selecting to implement either EFT or EDO debit orders and definitely will explore these scenarios in depth in my upcoming blog post.
About the Author:
Before choosing debit order payment as a solution, be sure to check Tim Smarts excellent resources on the best debit order service available for your business.
No comments:
Post a Comment