Member question: “What are your policies with respect to allowing vendors to direct debit your bank accounts for invoices due?
- “Our policy does not support vendor direct debit of our bank accounts. We do have an exception process for situations where vendor stoppage may have material impact (i.e. utilities for a manufacturing plant) or the vendor requires DD and there are no other alternatives (i.e. postal service).
- “I think part of our position is a historical perception that it is ‘bad’ to allow another entity to have access to debit your bank account. I am starting to question in today’s technology world if we need to think about this differently. I think we could tighten up our payment processes and gain efficiencies by leveraging vendor DDs more.
- “When we set up the DD exception with the bank, it has very specific parameters and we are establishing a control processes to monitor to ensure DDs exceptions are current and valid. And we do encourage our customers to allow us to DD their bank accounts! Looking for policies and/or perspective from other companies.”
Peer answer 1: “We recently added an addendum to our global payout policy in which we labeled direct debit as a high risk payout method, and defined our process by which this payment method could be requested.
- “We have a workflow tool for the request, once approved by financial operations it feeds to treasury for debit filters or mandates or any action needed to allow the debit to our account. We struggled with timely recons with DD, comprehensive payments reporting, and accountability on matured contracts and debit authorizations.”
Peer answer 2: “Direct debit is a hot button item at my company also. Treasury has always had the point of view to not allow direct debits unless it is not profitable or if the risk is high not allowing them (i.e. utilities or certain governmental payments). We have it listed in our internal financial controls to avoid direct debits unless there is good reason for them.
- Our AP teams are constantly challenging treasury on this topic and we have always been open to discussion. We now have a process where a treasury leader and a controller of the business must both sign off before a direct debit can be initiated.
Peer answer 3: “We’ve recently discussed this as well, mostly related to an ADP process which is daily and manual for the team. We don’t have specific policy but have historically avoided it. We’re also revisiting though due to the efficiencies it can provide. For example:
- “SCF: Our provider wanted us to open an account at their bank. We prefer they auto debit our treasury accounts rather than have another account to monitor and fund.
- “Government/utility: We’ve had instances where we do not need to provide a LC or BG if the utility can auto debit our account.
- “ADP: Currently, a manual wire process; we are investigating whether it’s worth the manual effort versus allowing ADP to auto debit our accounts.”