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Many business owners know the difficulty that comes with chasing customer payments at month’s end. The time and effort spent on invoicing admin every month can be less than ideal and, quite frankly, frustrating. But what if there was a way to automate each payment so you don’t have to worry about that? Well, that’s where debit orders come in.
As a business owner, offering debit orders to your customers can be incredibly beneficial, as they simplify day-to-day tasks and streamline business operations. They effectively put an end to the struggles that come about with your customers’ recurring payments.
Now, let’s take a closer look at everything you need to know about the benefits that come along with using debit orders for recurring payments.
Top tip: It’s easy to confuse the two, so here is more information on a debit order vs. a stop order.
- What is a Debit Order
- The different types of Debit Orders
- What is a recurring payment?
- Easy to setup
- Automatic payments
- Good for Credit score
- No cash risk
- Flexibility and customisation
- Improved budget planning
- Overall peace of mind
- Improved cash flow
- Time-saving and efficient
- Available to all businesses, no matter the size
- Less administrative worries
- Overall peace of mind
UNDERSTANDING DEBIT ORDERS AND RECURRING PAYMENTS
As a business owner, you’ll likely want to simplify your finances and more effectively manage recurring payments. But how do you do that? Are debit orders the solution? To answer that question, you’ll need to understand more about what debit orders and recurring payments entail.
Read on to find out more in this regard.
THE NEED FOR CUSTOMER CONSENT
A debit order is a financial agreement between a service provider and a customer allowing them to deduct an agreed-upon debit amount from the customer’s account each month.
So, for all services or repayments, money will leave the customers account to the service provider automatically on an agreed-upon scheduled date. Debit orders also give you a detailed payment history, so you’ll always have those to refer back to for tracking your collections.
DIFFERENT TYPES OF DEBIT ORDERS
Debit order specifics differ depending on the bank or debit order collection services you’re using, but generally, they can be split into two types:
- Electronic funds transfer (EFT) debit orders: This is what you’d consider the golden standard and the most commonly used debit order. An EFT debit order is simply one you have authorised, whether by a written or electronic that will go off each month without additional authorisations.
- DebiCheck debit orders: DebiCheck is a relatively new introduction to the debit order space. They have essentially replaced Authenticated Early Debit Orders (AEDOs) and Non-authenticated Early Debit Orders (NAEDOs). DebiCheck allows you a greater sense of safety and security by requiring the customer’s electronic confirmation before the first debit order is processed. Thereafter, the debit order will run according to the agreed mandate. This acts as a signed mandate where the customer agrees to the frequency and amount debited by the entity. As an added convenience, this is all done via the banking app on their mobile device.
At the end of the day, each debit order type has its pros and cons, so what you decide depends on your circumstances and needs as the service provider.
Top tip: Here’s more information on Netcash and DebiCheck debit orders that have gained traction across the financial space.
WHAT IS A RECURRING PAYMENT?
Recurring payments allow businesses and service providers to deduct money from a customer’s account at predetermined intervals. These intervals are typically monthly but can also be deducted on a yearly, weekly, or daily basis.
Recurring payments come in two varieties: fixed and flexible.
- Fixed payments are when customers are charged the same amount at the end of each payment cycle (unless there is a notified price increase). Examples would be monthly membership fees or insurance policy payments.
- Flexible payments, on the other hand, change depending on how much of the service the customer uses, and they are charged accordingly (i.e., pay as you go). A pay-as-you-go, flexible payment example would be an internet service provider (ISP) charging variable amounts based on usage per month for a company’s VOIP service.
Businesses that use this model include membership businesses (e.g., gyms), utility providers (e.g., phone bills and contracts), financial services (e.g., loan repayments), and subscription billing services.
With that said, having a bunch of recurring payments to chase up at the end of the month for you to sort out can be taxing – that’s where debit orders come in.
BENEFITS OF DEBIT ORDERS FOR CUSTOMERS
Debit orders offer plenty of advantages for the customer. They provide a convenient method of payment, allowing the customers to ensure important payments are made on time and at the same time each month. That means less hassle for your business and no more forgotten payments. Plus, there will be fewer errors to deal with since customers aren’t manually entering banking details or making an EFT.
But that’s just the tip of the iceberg. Here are the top benefits of debit orders for recurring payments that customers can expect.
EASY TO SETUP
First things first, debit orders are pretty straightforward when it comes to setting up. The specifics might differ slightly depending on your customers’ needs, but generally, the process is similar across the board.
It starts with the customer signing a mandate in order to set up the debit order. Once those technicalities have been sorted and their banking details have been provided, their bank can be contacted to deduct the money from their account. After that, your customers don’t have to worry too much about it, that is, if no changes to the agreement are needed (e.g., changing the payment date).
There’s nothing worse than chasing payments at the end of the month. Customers usually have to sort through payments manually, which can lead to all sorts of delays. What’s even worse is forgetting to make a payment on time. That’s why debit orders can be a great solution for recurring payments.
Debit orders are automated, so your customers don’t have to worry about administration at the end of each month. Instead, they can be sure that the money will be deducted from their account on the agreed-upon date. The customer will never miss a payment as long as sufficient funds are in their account.
GOOD FOR CREDIT SCORE
A credit score is a numerical value that lets service providers know how trustworthy a customer is when it comes to paying their bills. The higher a credit score, the better chances they have at being approved for things like credit cards, loans, contracts, and things of that sort. But how does the debit order come into play here?
Simply put, your customer’s credit score improves when they open accounts, keep up to date with payments, and ensure they have a low balance of outstanding fees. Since debit orders go off automatically on a set date, they don’t have to worry about having a delayed payment. So, as debit orders continue to go off and those payments are made, the customer’s credit rating is improved.
Top tip: Here is more on how to improve your credit score.
NO CASH RISK
In today’s modern age, cash payments are becoming a thing of the past, which makes sense since everyone knows how risky it can be to carry a lot of money around. Plus, cash payments can be tedious and time-consuming. Debit orders are entirely cashless, removing the risk entirely and giving your customers peace of mind.
FLEXIBILITY ABD CUSTOMISATION
Another bonus of the debit order is that your customer can customise each payment to suit their financial situation.
Do they have five different debit orders going off in a month? No problem. They can set each payment day in order of highest priority to ensure the most important bills are paid first. Perhaps they want all of their debit orders to go off on the same day. Either way, debit orders allow that freedom and customisation.
DebiCheck debit orders, for example, are prioritised. By using DebiCheck for their most high-priority payments, customers can ensure that those are deducted from their accounts before anything else. This is especially useful for important payments (e.g., home loans, medical aid, etc.) that shouldn’t be going off late or when fewer funds are available in their account.
IMPROVED BUDGET PLANNING
Everyone knows that creating a financial budget is a great way to keep track of income and expenses and reach any savings goals that you may have. Debit orders make it easier for your customers to make the most of budgeting. So, since they will always know precisely how much money will be deducted from their account and on which day, it’s easier to plan ahead.
OVERALL PEACE OF MIND
When all is said and done, if you consider every benefit this far, it’s clear that they all contribute to your customers’ peace of mind. No more worrying about missing a payment, losing out on subscription services, or paying penalties for being late. Since debit orders are automatic, they won’t have to worry about forgotten payments negatively impacting their credit score.
Overall, debit orders allow customers to be more confident in their financial situation and ultimately benefit your business (more on that next). Who wouldn’t want that?
BENEFITS OF DEBIT ORDERS FOR BUSINESSES
On the other side of that mandate, of course, lies the business and service provider. Debit orders can make running the business itself much more effortless. Using debit order collections isn’t new in the business world, but some might not know the advantages this system can provide.
Through debit order systems and online subscription billing platforms, like that offered by Billdozer, you can better manage business finances and keep on track towards your goals. Here are some of the top benefits of using the debit order system for small businesses (or any business for that matter):
IMPROVED CASH FLOW
Whether it’s a small, medium, or massive-scale business, measuring the amount of cash coming in and out of a business is always important – this is the company’s cash flow. Any successful business should seek out a positive cash flow (more money coming into your business and less flowing out).
Keeping track of your business’s cash flow is essential for you to keep on top of things. It not only lets you know where your money is being spent but also gives you an idea of how much money is available to spend at a given time.
That being said, companies that use debit order collections and have control over when payments are received don’t have to invest too much time and energy in delayed payments. Debit orders also allow you the foresight to know exactly when money will be flowing into the business, creating an overall more consistent cash flow.
This foresight is additionally beneficial as it is good for making projections within the company and ultimately improves budget planning.
TIME-SAVING AND EFFICIENT
As a business owner, there’s enough to worry about as it is. With paying salaries, watching over your cash flow, advertising – the list goes on. How is there time in the day to fill all these roles while still staying afloat (and sane)? Well, that’s where debit orders serve another key advantage.
With the introduction of the right debit order collection software, you can easily access electronic, online documentation of each debit order and payment. Combine that with automated customer invoices, and you’ve got yourself a lot less to do. Not only does this save you time, but it also helps business processes to happen more efficiently.
Top tip: Here’s more information on how debit orders save time.
AVAILABLE TO ALL BUSINESSES, NO MATTER THE SIZE
It doesn’t matter whether you have a large, booming enterprise or a fresh, out-of-the-water small business – debit order collection services are widely accessible, and anyone can give it a go. Of course, you should always consider the type of business you’re running, the goals, and the financial situation before deciding which system to use.
LESS ADMINISTRATIVE WORRIES
This goes hand-in-hand with time-saving and convenience. Debit order collection systems often create invoices independently and store them online for extra convenience. They help to free up some of your time, so you don’t have to worry about manual processing, invoice creation, or collecting funds. Everything is quick and straightforward.
Debit orders will ultimately lessen the administrative burden and let you focus your energy elsewhere, improving the business as a whole. Since debit orders are automated, and late payments are fewer, there will be less of a need to send follow-up communications and chase customers for payment.
OVERALL PEACE OF MIND
With debit orders, gone are the days of worrying about a customer’s late or missed payments. Debit orders also result in fewer administrative and manual processing operations to worry about.
Top tip: Want to find more ways to streamline business processes and ease your worries? Here are some tips and tricks on how to get paid faster by making bill payments easier for your customers.
FREQUENTKY ASKED QUESTIONS | DEBIT ORDER AND REURRING PAYMENTS
If you still have some things you aren’t sure of after all that, or you’re simply curious, don’t fret. Here are some of the most frequently asked questions surrounding debit orders for recurring payments.
THE BENEFITS OF USING DEBIT ORDERS FOR RECURRING PAYMENTS | WRAPPED UP
With all that being said, there’s no denying that debit orders are a game changer when it comes to simplifying your financial situation for both customers and service providers. So wouldn’t you say it’s about time you hop onto the proverbial train and take advantage of these incredible debit order benefits?
Speaking of modern-day payment solutions, why not learn more and dive deep into the evolution of mobile payments?
Samantha is a dedicated Payments Advisor at Netcash, South Africa’s premier payment solutions provider. With a deep understanding of Netcash’s services, he expertly guides customers on Debit Orders, Salary and Creditor payments, Pay Now, eCommerce, and Risk Reports. Brent plays a vital role in helping businesses and organisations streamline their payments, providing cost-effective solutions that have a meaningful impact on our clients’ financial operations.