Direct debits for SMEs

A Fin24.com user asks:

Why do the banks make it so hard to collect money through direct debit?

We run a small business, which has yet to make a profit, and we collect very small monthly sums from many of our customers - the ideal method would be to set up a direct debit with each of them.

Neither Absa nor FNB are, apparently, able to set this up for us without going through extensive credit checks of our business.

What is the reason? It just seems to me that the banking sector is once again simply making it really, really hard for new small businesses to get going at all.

Jannie Rossouw, senior business manager of Sanlam Cobalt, answers:

I spoke to the small enterprise division of a commercial bank to find out how they evaluate a direct debit order facility application.

When you have multiple debit orders and you receive the funds into your business account, a 30-day grace period kicks in during which time a debit order can be dishonoured.

In the meantime, you have had access to the funds i.e. you could have spent the money. The risk of dishonouring can be as high as 20%. This is the reason why a bank goes through a thorough application and credit evaluation process.

Sanlam, by means of its affiliate, Multi-Data