In simple words, bank collection meaning is transferring funds from one’s own account to another. These transactions are initiated by the debtor who tells the bank to withdraw or transfer a significant amount of money from a debtor's account to the creditor’s account. There is always an agreement between the debtor and the creditor and their respective banks for transferring the funds. Now that we know what is collection in banking, let us understand the two types of collection transactions.
The two types of collection transactions are:
Debit direct transactions (DD)
Request for debit transactions (RFD)
To initiate the transactions the creditor sends a message to the debtor’s bank. The debtor receives the message after the creditor validates the required requests such as the availability of funds and agreement details. This is how the creditor withdraws the specified amount from the debtor's account. If the RFD method is followed, then the approval message must be sent by the creditor and in the case of DD, no approval is required by the creditor.
If there is an insufficiency of funds, the debtor’s bank automatically cancels the DD/RFD. On the creditor’s side, the message ‘ Reject of Outgoing DD/RFD’ is sent.
This is the bank collection meaning in simple words. I hope you find this informative.
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What is collection in banking?
jailaxmi
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2 Year
2022-11-07T09:17:11+00:00 2023-08-16T16:30:47+00:00Comment
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