ACH Direct Debit could help reduce payment default

Companies battling with customer defaults may want to resort to ACH Direct Debit in order to reduce the incidence of defaults. This is because Direct Debit ensures automatic transfer of funds from the bank account of the customer to that of the company or service provider.

Payment default is a major challenge for many companies, especially utility service providers, mortgage companies and lenders in general. It also affects expected inflows for insurance premiums, subscriptions and other recurring payments. While many companies have not found a way out, compelling them to sometimes use brute force, ACH Direct Debit could just provide some solution.

ACH Direct Debit is a simple, secure and reliable service that enables individuals, large and small organisations collect funds from bank accounts of their customers. All that is required is for the company to opt for Direct Debit as one of the payment channels for customers. The company can then ask its customers to sign a mandate that will permit the company to authorise its bank to collect an agreed amount from the bank account of the customer on an agreed date.

Once the customer signs the mandate, he or she will only need to ensure that the account is funded such that the deductions and transfers can be effected. With Direct Debit, once the agreed time is due, money will be automatically deducted from the account of the customer and paid to the account of the company electronically.

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Direct Debit has been effective in many advanced countries and companies in Ghana could adopt it to ensure efficiency in collection of payments.

In Ghana, ACH Direct Debit was introduced by Ghana Interbank Payment and Settlement Systems (GhIPSS) but offered through the banks. Its CEO, Archie Hesse, admitted in an interview that many companies abroad have used it to improve on their collections. He therefore entreated companies here to also use it to improve their revenue mobilisation.

Direct Debit is mostly suitable for paying mortgages, utility bills, insurance premiums, loan re-payments, rent, and subscription-based service payments.

Mr. Hesse said once companies take time to explain the workings of Direct Debit, he was certain that many will buy into it and sign the mandate for the recurring deductions. He stated that using Direct Debit for payment was beneficial to both the company and the customer. It creates convenience for the customers and also allows them to plan and schedule their payments.

The GhIPSS CEO also explained that companies which adopt Direct Debit normally enjoy excellent cash flow benefits from receiving regular payments. They also have low cost of administration compared with requesting consumer-initiated payments. Direct Debit also provides better accounting efficiency compared to post-dated cheques or walk-in cash payments.

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