NACH Mandate: Everything that an SME should know

With increasing loans and recurring payments, it was becoming difficult for banks and other financial institutions to manage recurring payment collection processes. Manual intervention, physical forms, signatures, and collection were very time-consuming and exhaustive. To solve this problem, the National Automated Clearing House (NACH) came as a vivid solution introduced by the National Payments Corporation of India.

Its introduction has relieved India’s financial sector of the burden of recurring payment collection like that of payment for electricity bills, phone bills, SIPs, insurance premiums, business loans, working capital loans, EMIs, taxes, or any other recurring payments. Let’s learn a little more about NACH and its benefits. 

What is the NACH mandate?

An e-mandate is a kind of electronic permission that a customer provides to a company to collect recurring payments from its bank. It has brought together all of its partner banks and core banking branches. NACH is a major step in helping India’s cashless economy with a transition from cash payments to digital payments. 

With the help of NACH’s national footprint, it is possible to make large amounts of transfers across the country without any hassle. There were multiple Electronic Clearing Systems (ECS) running throughout the country. NACH has centralised them by consolidating them, standardizing them, establishing best practices, and eliminating local barriers/inhibitors.

It is a result of joint efforts of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA). NACH has been able to strengthen the payment and settlement landscape in India as directed and governed by the provisions of Payment and Settlement Systems Act, 2007 while also ensuring high-level security. 

Whereas ECH is an offline process requiring an excessive amount of paperwork which may take around 30 days for activation, NACH offers a fast and efficient clearing platform.

What are the types of NACH?

The two types of NACH mandate are NACH Debit and NACH Credit. 

1. NACH Debit: It is a feature used by banks and other financial institutions for the hassle-free collection of large amounts of payments from multiple customers. The lenders use these services to directly debit the amount from the customer’s bank account after his submission of the NACH mandate form. It offers advantages like secure, easy, quick, and timely transactions which are easily traceable with a unique transaction ID allotted to each. This leads to the minimisation of disputes and an early online resolution in case of any occurrence. 
2. NACH Credit: This facility is available to businesses authorised by the RBI. Such businesses use this platform for direct transfers of bulk payments directly to the bank accounts of multiple beneficiaries. It is made use of by several authorised businesses to disburse timely salaries, pensions, dividends, subsidies, and other benefits directly to the beneficiaries. 
   

How is the NACH mandate useful?

1. Simplified payment process: With NACH, there is zero to minimal manual intervention and no clearing of physical cheques. It has reduced paperwork and friction between institutions thereby simplifying the payment process. Quick payment approvals also tend to strengthen the relationships between financial institutions and their customers. For instance, a delay in credit card payment or a business loan repayment amount can incur a lot of interest charges. Auto debit from the account can save a client from such repercussions. Even government agencies are using this platform to securely transfer subsidies and benefits directly to Aadhaar-linked bank accounts.
2. Enhanced Customer Experience: With NACH, payments are automatically debited from the customer’s account when the customer authorises the company to do so. As a result, the frequency of delayed payments, errors caused by missed due dates, etc. has been minimised. And the customer can enjoy uninterrupted and smooth services. Such a seamless customer experience ensures that a financial institution has a loyal customer base. Many Small and Medium Scale Enterprises (SMEs) are using the NACH platform for timely repayments of their business loans and working capital loans. And hence, being loyal customers, they can enjoy the credit facility and help their businesses grow and thrive.
3. Easy activation: NACH has received wide acceptance from users due to its user-friendly interface. There is no requirement for complex programs or highly skilled staff for its activation process. With few details in hand, a financial institution can help its customers get on board the NACH platform for flawless recurring payments and related benefits. 
4. Cost-efficient: With a minimal requirement of manual intervention, NACH has simplified the payment management process thereby decreasing the cost spent on collection. And one does not even need to purchase costly tools for its operation. NACH is compatible with a variety of banks, government institutions, corporates, and Fintechs like Oxyzo Financial Services Pvt Ltd, etc.

Conclusion

NACH platform offers several advantages for both customers and organisations. It has helped not just in easy, quick, and hassle-free transactions, but has also made it easier to organise and manage each transaction.

It has become an integral part of loan systems where customers are easily able to pay EMIs without any delay and additional charges. 

Furthermore, it has made bulk volume transactions easier for organizations that are involved in doing so on a routine basis. NACH as a single settlement system has a lot to offer to all sized businesses including SMEs for safe payments and collection of regular funds.