Understanding debit orders
Debit orders are one of the most convenient ways of paying accounts that occur on a monthly basis but Galia Durbach, CEO of Core Banking Solutions at FNB, says that it’s important to understand the implications of linking a debit order to a current account.
The process begins with the signing of a legal contract between you and your service provider, such as an insurance company, for the deduction of an agreed premium from your account on a regular basis; usually monthly. The contract contains your signature, payment reference and banking details. The insurance company in turn instructs your bank to debit the agreed amount from your account and pay it into their account.
“Your contract is not with the bank. All the bank is doing is carrying out your instruction to the insurance company to debit your bank account,” stresses Durbach.
Be careful
Convenient as it may be, Durbach warns that you should be careful not to sign a debit order agreement
unless you trust the company you are giving authority to. “Because you are giving the service provider a certain amount of control over your bank account, it is crucial that you confirm their credibility before you sign any agreement.”
Before you enter into a debit order agreement with a service provider company, make sure you clearly understand your rights and responsibilities, as listed below, to avoid problems in future.
What are your rights?
- When, for example, your premiums increase, the company will automatically adjust the debit order after informing you, if this was in the original contract or document you signed.
- The agreement can be cancelled by a written notification to the service provider. This is not the responsibility of the bank where you hold your account.
- The service provider may not change any of its rights with regard to a debit order agreement without permission from you.
Taking care of
debit orders
To ensure that things are running smoothly with your debit orders you should:
- Check your bank statement regularly to make sure that correct amounts are paid to your service provider.
- Ensure that you have sufficient funds in your account for the debit order to go through.
- If you decide to cancel the debit order you have to inform the company concerned.
- Read the debit order agreement well — it is a contract between you and the company, not the bank.
- Be careful not to sign a debit order agreement form unless you trust the company that you are giving authority to.
- Should something go wrong with your debit order, you need to contact the company you are paying. If they can’t help you, contact your bank.
Generally, debit orders represent a convenient form of payment and the vast majority of these transactions are processed without any difficulty. However, if you think something
has gone wrong with your debit order, for example a premium higher than that agreed is coming out of your account, it is advisable that you immediately query it with them.
If you feel the need to reverse the debit order, request a reversal from the bank. You may also request the bank to place a stop payment on the debit order.
Stop orders a safer option
If you are not comfortable with the idea of giving control to the insurance company, Durbach recommends a stop order or scheduled payment as a better option since you, not the company, are giving the instruction to your bank to process a debit to your account and pay it to a beneficiary. “With a stop order or scheduled payment you remain in control and can change or cancel the instruction whenever you feel the need to.”
While a stop order or scheduled payment may seem more appealing, Durbach says most companies don’t accept it where a regular payment like a monthly instalment is the core deal
between you and them. The risk of contracts being cancelled soon after being taken out because of non-payment is too great, so most companies prefer to have control over the collection of payments.
Durbach therefore recommends a stop order or scheduled payment for a recurring payment, like school fees, rent or paying your domestic worker’s salary. “The person will regularly receive the money, but you can change or cancel the payment at any time, when circumstances change.”
