Set-up and forget. Direct Debits let you automate recurring payments from your clients.
IMPROVE YOUR CASH FLOWS WITH DIRECT DEBITS
Are you being bothered by late payments? Do you spend hours and hours chasing them? Well, Flo2Cash direct debits bureau service is here to help. We will setup a direct debits service for you so that your customers can sign direct debits on phone, online, email or on paper, after which you can send an invoice and debit their bank account on payment due date. Moreover, the set-up requires no help from either your IT team or the bank. Its smart analytics and dashboard lets you see the status of transactions in real time and built-in dishonor management system follows up on dishonor payments. Also, all transactions are secure and approved by the payment authority.
BENEFITS FOR BUSINESSES
Increasingly more and more businesses and charities are adopting direct debit mode of payment, owing to their manifold benefits, some of which are:
- Low Processing Costs - Taking into account all cost elements involved in processing a recurring payment through conventional means, direct debits service costs much cheaper.
- Short Processing times - Automating the payment process, significantly reduces the time it takes a business/non-profit to receive the payment.
- Simplicity - Once set up, direct debits recurring payments do not require any management either by the business or its customer.
- Security -Direct debits are more secure form of payment compared to payments made through cash or cheques
- Low Customer Administration time
It significantly reduces both the time and energy spent in calling, arranging and chasing late payments and the greatest benefit of all is the improvement in cash flows. Because you get paid on time you can better manage the expenses of your business.
BENEFITS FOR CHARITIES
Direct Debits benefits charities in the following ways:
- Donors that opt for Direct Debits as a payment method support Charities for a longer period as compared to those who opt for Credit Card payment.
- Direct Debits transactions have a much lower failure rate, less than 1% compared to 7% for credit card transactions. This translates to more funds for charities.
- In the long run, the transaction fees for direct debits is much lower than credit card transactions resulting in savings for charities.
- Given a choice, four out five donors choose direct debits as a gifting option owing to the convenience it offers.
- It allows charities to get more out of their advertising budget by focusing on acquiring new donors as recurring donors don’t need to be targeted.
- By giving donors the option to gift small value regular donations charities not only reach out to a new segment of donors but also increase the fund value per donor per year.
- Direct Debits recurring payments ensure regular, predictable cash flows enabling charities to better manage fixed and variable expenses.
- Originator: The business that provides goods/services or a not-for-profit organization that appeals for gifts.
- Sponsoring Bank: The bank where the originator maintains its account.
- Payer: The customer who agrees to pay the bills using direct debit or the donor who pledges a gift to the not-for-profit.
- Paying Bank: The bank holding the payer's account which is to be debited.
- The originator sends an invitation to the payer, requesting him to make future payments using direct debit.
- The payer accepts invitation and responds by filling in a DD mandate form for direct debit authorization and it sends it to his bank, the payer's bank.
- The Payer's bank, validates the DD mandate from and sends it to the Sponsoring or the Originator's bank. This completes the set-up, an intimation of which is sent to the Originator.
- The originator starts submitting direct debits to its bank, the sponsoring bank.
- The sponsor bank forwards DD instruction to the payer's bank
- The bill amount is debited from the payer's account and credited to the originator's account
INTERNATIONAL USAGE & TRENDS
Direct Debit Payments are processed through a network of financial institutions - the ACH in the US, Bacs in the UK, SEPA in Europe, Australian Payments Network in Australia.
According to statistics released by Bank of International Settlements for 23 participating countries, Germany at 50.6% has the highest usage of direct debits as percentage of total number of transactions for 2015.For the same year this percentage for some other countries are 20.6% for South Africa, 19.5% for France, 19.3% for Netherlands and 18.7% for Brazil. The countries with the lowest direct debits usage are Saudi Arabia at 0.1% and Russia at 0.6%. [Source: CPMI - Red Book Statistical update, December 2016, page 457]
World's Payment Report 2016 released by Capegemini and BNP Paribas, says that payments made via direct debits witnessed accelerated growth of 6.6% in 2014 compared with the rate of 5.3% in 2013. A major contributor of this growth is the increased usage of direct debits in Europe and North America, mainly driven by utilities, government and corporate treasury sectors. Also, contributing to the growth is Latin America where provisions of direct debit payment facilities by many e-commerce websites and banks is the contributing factor. The report further says that innovative solutions from non-banks from e-commerce are expected to accelerate growth of direct debit transaction volumes, assuming they will not be replaced in some regions by requests for transfer. [Source : World Payments Report 2016, Capegemini and BNP Paribas. Page 10]
For NZ, some interesting statistics on direct debits usage can be found on the Payments NZ website here.
HISTORY & ORIGINS
Although Direct Debits in some form were first used in Germany in early 1960s, the name widely associated with idea of Direct Debits is Alastair Hanton of UK, who independently thought of it in 1964. It was born out of the need for Unilever to collect payments from thousands of its small ice-cream retailers. The idea was to automate and speed-up collection of regular payments. It replaced the prevailing 'standing order arrangement' which was rigid and therefore not widely used and it took around four years for the idea to be accepted by the banks back then, after several meetings. Originally named 'Automatic Debit Transfer' the name was later changed to 'Direct Debit' which implies fast and not complex. [Source: How Direct Debit began in the UK, a film by Claudia Nye]
TYPES OF DIRECT DEBITS
Direct Debits can be broadly classified on the basis of authorization. i.e. the party to which the payer has granted the authorization. This classification system comes from Germany and has two categories as follows:
1. Collection Authorization
The payer authorizes the payee to debit his/her account for a fixed amount of any future invoices. This type is common in consumer to business transactions like paying utility or phone bills.
2. Debiting Order
The payer authorizes his or her bank to honor direct debit requests from a name payee. This type is more common in business to business customers.
DIRECT DEBITS GUARANTEE
Every country has its own rules and regulations governing direct debits so as to protect the consumers. Some of the basic guarantees provided are as follows
1. Change notice - Any changes to the amount, date or frequency of payment needs to be communicated to the customers in advance, 10 days is the most commonly used time frame.
2. Refunds - The customer gets a full refund from the bank for payment taken in error.
3. Cancellations - The customer can cancel direct debit payment at any time before the due date. He/She is entitled to a full refund in case payment is withdrawn after cancellation.
DIRECT DEBITS VS STANDING ORDERS
A standing order is an instruction to your bank to make regular payments of a fixed amount, either to someone else or to another account in your name. These days, it is more often used in non-commercial setting where one needs to send regular money to his/her child. The payment amounts and dates are fixed and cannot be changed without obtaining a signature. On the other hand direct debits, are more often used in commercial transactions wherein you give an organization the authority to withdraw funds from your account. Examples include utility bills, recurring gifts to charities etc. In this type of arrangement an organization can change the dates and the amounts, without seeking your authority again. Also, direct debits are covered under the direct debit guarantee program where the consumer can claim a refund for a wrongly withdrawn amount from his bank account, whereas there is no such protection in a standing order.
DIRECT DEBITS MANAGEMENT
A Direct Debit Bureau provides its users with an online dashboard or console where they can login to access management and reporting tools. Some of the basic features offered are.
1. Searching Mandates - A direct debit mandate is an authorization from your customer to collect future payments. From time to time you may need to check the mandate or revoke it , this requires searching it first. With this feature you can easily search the mandates database by using mandate ID, the customer name, email, the payment reference or the customer's bank account details.
2. Updating Payment Plans - It allows one to change the direct debit amount, frequency or period of direct debits payment schedule of a particular client.
3. Manage Failed Payments - One can group together failed transactions and then re-attempt the payments using this feature.
4. Batch Payments Processing - Used for carrying out batch operations e.g. mandate imports so as to process grouped payments.
5. Reporting - One can see all historical direct debit transactions within a particular date range and can apply filters to narrow down results. Some of the filters include transaction status and dishonor reasons.
6. Transaction Search - Historical transactions can be searched using date range, plan ID or account name.
7. Manage Profiles and Users - The admin can update his profile, create or delete users, assign roles and can make selective features available for different users.
GUIDELINES FOR ORGANIZATIONS
Every country has a set of guidelines laid down by its Payments Control and Regulatory Authority that protects organizations using direct debits from possible customer frauds. Some of the key points of these guidelines are as follows:
1. An organization should obtain clear instructions authorizing a direct debit transaction from the customer.
2. Terms and conditions of the service agreement should be made available to the customer when a Direct Debit Request is given to them. Also, this agreement should clearly explain the procedure for cancelling the DDR.
3. Details of the DDR should be kept for 7 years after the date of the last processed debit.
4. An appropriate proof should be kept that verifies that the person providing a DDR is actually an organization's customer.
5. Only organizations that come under the low risk category should be allowed to accept DDRs. A high risk category of business services are one-off with no long term relationship with the customer.
6. The organization should have an appropriate refund policy that leaves no scope for a refund fraud, in which a customer asks the organization to refund money to an account other than from which the payment was originally made.
Flo2Cash Direct Debits Service Bureau, established in 2003, has been providing the service to all kinds of organizations in New Zealand. From small businesses to educational institutions, membership associations, charity organizations, finance companies have seen considerable increase in cash flows with low payment processing costs.