Many merchants receive payment from their customers via debit order. In South Africa (with its culture of late payment) it is a great way to receive payment from customers. The level of non-payment and the costs of chasing payment are dramatically reduced.
Debit orders are useful because payment automatically gets taken from the customer’s bank account and an active step is not required by the customer each month. In other words, if a customer has to actively pay a merchant each month, then each month the customer considers whether it is receiving value.
We often get asked questions around what form does the debit order authorisation need to take? Must it be in “writing”? If so, must that “writing” be “physical writing” (i.e. pen and ink visible on paper) or will “electronic writing” (i.e. electronic bits and bytes visible on a screen) be legal in terms of our law? If in (electronic) writing, can it be an electronic debit order authorisation or electronic mandate? Must it be “signed“? What form must the signature take? Must it be a pen and ink manuscipt signature or can it be an electronic signature? Can the authorisation be obtained verbally? Over the phone for example?
The reason for the questions is simple. Merchants want to reduce the barriers to making a sale – they want to make it as easy as possible for a customer to pay them money. If a prospective customer has to print out a debit order form, completed it by hand, sign it, and then either fax it back to the vendor or scan it and then e-mail it back to the vendor, this acts as a barrier and inconveniences the prospective customer. Merchants also want to reduce the admin burden. An interesting observation is that many people use Fax 2 Email services now. So, in both the fax and scan options, the debit order authorisation really ends up in electronic form anyway.
Electronic debit order authorisations are legally possible
They seem like straightforward questions at first glance, but they are more complicated than it appears as none of the role players have a definitive or clear answer on the matter. This is a complicated area of law and therefore the explanation is quite complex, but we have tried to make it as easy to understand as possible. The concept of an electronic debit order is new to the market and as a result the majority (if not all) people believe that electronic debit orders are not permitted. This is simply not true. Electronic debit order authorisations are not prohibited by the law and are legally possible. There are however various provisos and conditions that need to be complied with and met (many of which revolve around information to be provided by the merchant’s customer and steps to be taken by the merchant to ensure reliability). Click here for a full discussion on how and why electronic debit orders authorisations are possible.
Unfortunately there is still quite a lot of uncertainty regarding their use. So, if you as a merchant want to start obtaining electronic debit order authorisations, the first place to start is with your sponsoring bank. Before a merchant can use the debit order systems it firstly needs the approval of its sponsoring bank. This approval normally takes the form of an agreement between the merchant and its sponsoring bank. You need to review this agreement and ascertain whether or not your sponsoring bank has laid down any specific requirements for debit order authorisations. Often the agreement does not deal with the issue specifically and states something like:
“The Merchant shall ensure that all the debtors have signed the necessary instruction mandate or have accepted the method of collection on a high quality voice recording, authorizing the Merchant and/or its agent and/or its cessionary, to recover the debt by a specific collection method. A “debit order mandate” means the written authority given by the account holder or an authorized signatory of the account giving permission for a debit order is to be processed against such account. The Merchant warrants that it shall produce, on demand, the relevant documentation conferring upon it the necessary authority to debit the third party’s/ies’ account/s.”
This is not very helpful. What is “the necessary instruction mandate”? What is “written authority”? Is this writing in paper or electronic form? What form must the “relevant documentation” be in? Please let us know if you need any assistance in interpreting or determining the specific requirements.
If your sponsoring bank does not allow you to obtain electronic debit order authorisations, then please contact us. We might be able to assist you in convincing your sponsoring bank that it is possible to use electronic debit order authorisations. Click here for a full discussion on how and why electronic debit orders authorisations are possible. If they can’t be convinced, maybe it is worth looking to another sponsoring bank that will or alternatively looking at receiving payment from your customers in another way.
If you are a sponsoring bank it is obviously in your interests to allow your customers to obtain electronic debit order authorisations. If you’re able to allow them to do so, it will make your customers’ life easier and therefore you are going to get more customers. If you would like to find out how to allow your customers to obtain electronic debit order authorisations, please click here or contact us.