Do you offer bank drafting to your customers as a way of paying their bill each month? If your answer is “No”, my next question is “Why not???”. If you don’t offer bank drafts, you are missing out on the easiest method there is to collect payments.
It always surprises me when I encounter a utility that does not offer bank drafts. At a recent speaking engagement during a Rural Water Association Annual Conference, I posed the question “Does anyone not offer bank drafts?” Astonishingly, at least 15% of the people in the room raised their hands!
I’ve also presented demonstrations of Eagle Utility Management system to three different utilities recently that don’t offer bank drafting. One even told me “Our board won’t let us”. I know that some boards are behind the times (I wrote about this in issue #13) but that one took me totally by surprise!
What is bank drafting?
Bank drafting (also known as direct debit) allows the utility to initiate a paperless payment transaction whereby funds are automatically deducted from your customer’s bank account and deposited into your account. All your customer has to do is give your utility the authorization to draft their bank account by providing their account information. While I’m unable to speak for other software vendors, our billing software prints a message on the bill reminding your customer that their bill will be drafted on the draft date.
As the draft date approaches, an electronic file is prepared in a standard format known as ACH, for Automated Clearing House. This ACH file is transmitted to your bank regardless of what financial institution your customer banks with. The ACH system then handles the process of deducting funds from each of your customer’s bank accounts and depositing it in the utility’s bank account.
The entire process is paperless and eliminates the need for opening mail payments or receipting a payment over the counter. Nor does a deposit have to be prepared and taken to the bank. Most (note that I said most, not all – there are exceptions) customers who sign up to pay by bank draft ensure that funds are in their account to cover the draft, so very few drafts are returned for insufficient funds.
Again, I’m not able to speak for other software vendors, but our billing software completes the process by creating a batch of payments from the draft transactions. That saves even more time and effort by eliminating the time-consuming task of entering payments.
So, if it’s that easy, why are some utilities not taking advantage of bank drafting…?
There are three possible reasons why a utility wouldn’t offer bank drafting:
- Your bank doesn’t offer ACH bank drafts
- Your software doesn’t support bank drafting
- You’ve never offered bank drafts before
Let’s look at each of these reasons in more detail…
Your bank doesn’t offer ACH bank drafts
Back in the day, only larger banks participated in the Automated Clearing House and offered ACH bank drafts. Now, even most regional and community banks accept bank drafts. Even if they don’t have the processing capability themselves, smaller banks often have a relationship with larger banks to offer ACH capability. If your bank can’t accommodate your needs by offering ACH bank drafts, it’s time to seriously consider changing banks. Any cost from your bank should be nominal and should not be an impediment to offering bank drafts.
Your software doesn’t support bank drafting
Much like banks, if your software doesn’t offer the option to create ACH bank drafts, it may be time for new software. All software should provide certain basic functionality. Let’s face it, this is 2011, and bank drafting needs to be part of that solution. If your software doesn’t provide the capability to offer bank drafting, ask your software vendor why. Believe it or not, many utilities don’t realize all the features their billing software offers. Could it be that bank drafting falls in this category for you?
You’ve never offered bank drafts before
Many local governments and utilities fall victim to what I call the TTWWADI syndrome – that’s the way we’ve always done it (or in this case, that’s the way we’ve never done it)! If the reason you’ve never offered bank drafts is because you’ve never checked into it, now is the time to get started. It should be as easy as one phone call to your bank and another to your software vendor. They each should be able to assist you with their part in getting started.
Bank drafting really is the most cost-efficient way to collect payments. Trust me when I say your customers will appreciate it and you will wonder why you waited so long to get started with bank drafts!
