It should be apparent that the processing of debit orders poses an inherent financial risk: transactions can be returned unpaid due to insufficient funds or disputes, as well as the possibility that debit orders are processed fraudulently. All financial institutions that process debit order require some level of security. In the case of the banks they require a deposit in order to cover the risk of fraud. This is generally 10% of the monthly aggregate value of all transactions processed.
If a customer processes R100 000 worth of transactions in a month then they will be required to secure this with a deposit/ security of between 50% and 100% depending on the risk profile of the client. New business with no financial or track record would need to put down 100% of monthly aggregate.
Netcash offers a far more practical method of managing the required security. Depending on the retention model selected, up to two amounts will be held back from every batch processed. These two amounts are referred to as Surety Retention and Unpaid Retention respectively and are explained as follows:
This is the amount being retained as surety to be provided to the banks against the value of your batch. Surety, in effect, is a minimum liquidity level that we must provide our bankers with in order to be able to process debit orders. It is also used as additional cover for late returned transactions not provided for in your unpaid retention. Whatever remains of this amount after 22 working days will released to the available balance on your Netcash account. Surety retention is 10 percent of the value of the batch and will be retained on every batch processed. Any amount remaining after 22 working days forms part of the available balance on your Netcash account.
Where the legal entity is a sole proprietor, the 10 percent surety will not apply. In this case, for the first 3 months after commencement date, Netcash will retain 100 percent of the value of any batch processed. After 22 working days any remaining amount forms part of the available balance and can be released to your bank account. After the initial 3 months Netcash are prepared to give consideration to reducing the 100 percent surety retention to 20 percent. This will depend on a number of factors and the granting of the reduction of the surety retention is entirely at the discretion of our operations department.
This is the amount being retained from the batch value to cover returned transactions. The percentage is calculated on the average returns on batches for the past 6 months. If the value of the unpaid transactions in a batch is lower than the amount being retained, any remaining balance will become part of your available balance after 22 working days. However, if the total of the unpaid transactions is higher than this percentage then, as mentioned above, the extra unpaid value will be refunded out of the 10 percent surety retention. Since we have no transaction history on the first batch, the unpaid retention for this first batch will be applied at 10 percent. Thereafter the retention will be based on the calculated unpaid history on the account.