Accounting principles applied to
debit order collections

The concept of a debit order service provider collecting funds into an internal bank account (Direct Debit account) and then releasing /paying the funds to your organisation’s account might be a strange concept for many bookkeepers and accountants in the industry.

Understanding how to correctly record debit order collections in the accounting records can be a tedious task and sometimes fails miserably especially if you’re unsure how your debit order service provider works.

What makes it even more complicated is the fact that most debit order service providers do not provide their clients with proper tax invoices and ways to reconcile their debit order collections and debit order fees.

Direct debit, on the other hand, provides reporting that assist with the accounting principles when dealing with debit order collections. Our reporting includes a detailed bank statement report that includes successful debits (per client), unsuccessful debits (per client), disputed debits (per client), amounts released to you, our fees and then the balance in the account (which is usually the security retention).

We also send out detailed monthly invoices stating the amount of transactions that were processed along with the fee per transaction whilst adhering to the VAT rules set out by SARS.

Other options available to clients include our debit order system used in conjunction with our billing partner SnapBill that makes the process a lot easier. Invoices are automatically marked as paid or unpaid when a successful, unsuccessful or dispute is received and updates the running statement of each client.

That said, numerous queries were received by debit order customers regarding the concept of the debit order repayment model and we have decided to shed some light on the topic. Below is an explanation of how debit order collections are handled in the journals and with basic accounting principles.

The examples include how you can add the direct debit account where funds are originally collected into and released to your actual bank account as well as sales, VAT, expenses and customer accounts to provide a comprehensive overview of which accounts are affected when recording transactions.

Firstly, you will need to open an intermediary/internal bank account under “Bank” or “Cash and cash equivalents”. Then, you can start posting the different transactions to each account.

1. Debit order collections (bank)

Scenario: You as the User collect R100,000 per month. Your repayment terms are 90% of funds collected, released on day 7, 10% of funds collected released on day 40 with a 10% security retention (security already retained from previous months). One (1) customer returned as unpaid to the amount of R10,000 and one (1) customer reversed the transaction to the amount of R5,000. Fees for the month are R1000.