Direct Debit is an authority that a bank account holder gives to his or her creditor to collect an amount directly from his/her account.
The main objective of direct debits is to serve as an alternative collection solution to organizations for recurring and frequent payments.
Features of Direct Debit Transactions
- Yearly payments
- High volume (high number of transactions)
- Low value; not more than Ksh 500,000
Types of Direct Debits
- Static Direct Debit
- Variable Direct Debit
Parties to a Direct Debit Relationship
- Originator: The entity initiating the Direct Debit transaction.
- Originator’s Bank: The bank in which the originator maintains a collection account, that is, Co-op Bank.
- Payer: This is an originator’s customer (typically an organization or individual), that is, springboard capital members/clients.
- Payer’s Bank: The bank in which the payer maintains an account to facilitate settlement of Direct Debit instructions.
Direct Debits Benefits
- For the Originator
- Easy reconciliation
- Good for variable payments
- The originator is in control of collections
- Proper financial management and planning
- Provision of status reports, that is, return files
- Affordable mode of collection
- For the Payer
- Elimination of reliance on memory to settle recurrent bills
- Safe and convenient
- Efficient and cost saving
- Quick and easy resolution of queries