Picking the best debit order strategy

By Tim Smart


Many companies have no idea of the benefits of implementing a debit order service to receive monies from their customers, let alone which debit order solution could be the ideal for their requirements.

Having taken care of many organizations payment collection techniques I am going to try and explain why you need to be employing debit order as favourite payment collection method for your organization along with which debit order process would be ideal for your niche and type of customer base.

Lets start with what a debit order is:

A debit order is an instruction which a bank or credit card account holder gives a enterprise to recover monies directly from their personal account. They way in which a customer provides this instruction is simply by filling out a written or verbal (usually telephonic) debit order mandate.

A debit order, as we make reference to it in South Africa, is often referred to as a direct debit in many regions of the planet. To learn more about direct debits please visit the appropriate Wikipedia webpage.

In South Africa there's generally 2 types of debit order. Electronic Funds Transfer (EFT) and Early Debit Order (EDO) which can additionally be broken into Authenticated Early Debit Order (AEDO) as well as Non-authenticated Early Debit Order (NAEDO). EFT debit orders run after EDO debit orders when processed using the standard bank debit order runs. Both AEDO and NAEDO debit orders run in a very randomised manner before EFT debit orders and enable collectors an identical probability to collect funds from their debtors.

NAEDO debit orders were announced in 2008 as a result of National Credit Act initiative and enable lenders to acquire as much as R5,000.00 through the most fair way achievable. It is important to observe that normal EFT debit orders allow for collecting anywhere up to R500,000.00 per debit instruction.

EFTs are often more affordable than AEDOs and NAEDOs but don't include the ability to track an individuals account/credit card for up to 32 days. If funds would arrive in the account within the tracking period, these funds could be restricted for collection by the party triggering the debit.

Some short examples to clarify where EFT and NAEDO debit order collections might be used:

1. An investment business wanting to collect an additional payment from one of their investors would most definitely make use of an EFT debit order on the grounds that the probability of the customer having available funds for collection is very high. The total amount to be collected would also more often than not surpass the R5,000.00 NAEDO limit and cost of the collection will be a consideration.

2. Insurance brokers acquiring a monthly payment from one of their consumers for funeral cover would be better off choosing a NAEDO debit order run. The probability of this consumer having money handy is rather low and tracking will probably be helpful to monitor the consumers account for when funds do arrive (commonly their regular monthly wage).

Just about any micro loan provider would be best off making use of NAEDO since they do business with clients who commonly do not have money available within their accounts especially over the normal debit collection dates. This is certainly quite obvious since these individuals probably have a record of applying for credit and would possibly have numerous debit orders to various creditors going off on the same day. It is because of this that the randomisation of NAEDO orders could become a big benefit to make certain each creditor has an identical probability of being compensated.

On the flip side any service provider will likely pick EFT as their preferred debit order procedure because they maintain a certain amount of influence over their client in the form of ending/suspending service in order to obtain payment. Service providers also will not offer any credit conditions and payment is done on a regular monthly basis.

I realise there are several situations and border cases which may justify a service provider or creditor choosing to utilize either EFT or EDO debit orders and will eventually delve into these instances in greater detail during my next article.




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