Accounting principles when dealing with debit order collections

The concept of a debit order service provider collecting funds into another bank account and then releasing/paying out the funds to your organisation’s account might be quite a strange concept to grasp for many bookkeepers and accountants in the industry.

Understanding how to correctly record these transactions in the books 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 service providers do not provide their clients with proper tax invoices and ways to reconcile what the actual fees are that they paying for their debit order collections.

Direct Debit, on the other hand, is a lot more transparent when it comes to monthly reporting and invoicing.

We provide our clients with a repayment schedule stating exactly how much is collected, what the repayment terms are, how much will be paid out and when the funds will be paid over to the organisation’s bank account, making the process a lot more clear and efficient.

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 as to the components of a standard tax invoice.

As we have received numerous queries regarding the concept of collecting funds into an internal account and releasing it, on repayment terms to the organisation’s bank account, we have decided to explain how this works in relation to your general ledger and basic accounting principles.

Below are some examples on how you can bring in the internal bank account where the funds are originally collected to as well as how the funds are paid out to the company’s actual bank account.

These examples also include normal sales, VAT, expenses and customer accounts to provide a comprehensive overview on which accounts are involved when recording transactions.

1. The general ledger accounts are as follows; followed by a journal based example:

Accounting for Debit Order Collections

2. Journals relating to the general ledgers above:

Date

Description

Debit

Credit

R

R

01/01/2014

Customer W

25,000

Sales

21,929.82

VAT-Output

3,070.18

01/01/2014

Customer X

25,000

Sales

21,929.82

VAT-Output

3,070.18

01/01/2014

Customer Y

25,000

Sales

21,929.82

VAT-Output

3,070.18

01/01/2014

Customer Z

25,000

Sales

21,929.82

VAT-Output

3,070.18

01/01/2014

Service provider internal bank account (funds collected)

25,000

Customer W

25,000

01/01/2014

Service provider internal bank account (funds collected)

25,000

Customer X

25,000

04/01/2014

Customer X

25000

Service provider internal account – Dispute

25,000

01/01/2014

Service provider internal bank account (funds collected)

25000

Customer Y

25,000

01/01/2014

Service provider internal bank account (funds collected)

25,000

Customer Z

25,000

01/01/2014

Debit order collection fees

4,385.96

VAT-Input

614.04

Service provider internal bank account OR company bank account for external billing

5,000

07/01/2014

Bank – Company

63,000

Service provider internal bank account

63,000

10/02/2014

Bank – Company

7,000

Service provider internal bank account

7,000

Direct Debit supports all clients through every aspect of the payment collection process including the correct recording of debit order transactions in the books, while providing assistance and transparency every step of the way.

Contact us for further information
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Direct Debit
Direct Debit offers a comprehensive debit order solution, from initial advice and account set up, through to the processing debit orders.
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