Pre-authorized debits (PADs)
Offer pre-authorized debits (PADs) to your customers and make it easier for you to manage and collect payments.
What are pre-authorized debits?
Pre-authorized debits or PADs are a form of pre-authorized payment. They let you automatically collect payments from your customers' bank accounts. They reduce late payments, streamline your payment management process and generate steadier cash flows.
Rule H1 on pre-authorized debits (PADs)
To offer pre-authorized debits to your customers, you must comply with Rule H1 – Pre-Authorized Debits (PADs) (PDF, 796 KB) External link..
Payments Canada requirements
As the organization responsible for Canada's payment clearing and settlement systems, Payments Canada establishes the requirements that businesses must meet to offer PADs. In Rule H1, they outline the responsibilities and obligations related to using PADs, including the documents that need to be prepared and signed.
Payor's PAD agreement
A payor's PAD agreement is a document your customers must sign to allow you to withdraw money from their account. For more information, see Appendix II of Rule H1 – Pre-Authorized Debits (PADs) (PDF, 796 KB) External link..
Types of PADs
There are 4 types of pre-authorized debits. Three of them are for businesses and the fourth is for financial institutions.
Personal PADs
- The payor is an individual.
- Used to pay for goods and services provided by your business.
Business PADs
- The payor is a business.
- Used to pay for goods and services related to business or commercial activities. Examples include payments between franchisees and franchisors or between retailers and manufacturers.
Cash management PADs
- The payor is a closely affiliated business.
- Used to consolidate or reposition funds between accounts at different financial institutions. An example is a payment from a subsidiary to its parent company.
Funds transfer PADs
- Only financial institutions offer these PADs.
- Used to transfer funds between a person's accounts that are held at different financial institutions. The institutions must be members of Payments Canada.
Timing
The timing for pre-authorized debits must be specified in the payor's PAD agreement.
Set-interval PADs
Take place at specific, set or predictable dates, or according to the payor's PAD agreement.
Sporadic PADs
Take place irregularly and infrequently.
One-time PADs
Take place once, on a set date. Any additional PADs require a new agreement.
FAQ
Before you can offer a PAD option to your customers, you must sign the AccèsD Affaires enrollment agreement (referred to as Payee Letter of Undertaking in Rule H1 – Pre-Authorized Debits (PADs) (PDF, 796 KB) External link. ) with the Desjardins caisse or branch that will process the PADs on your behalf.
Before initiating a PAD, you must get permission from the account holder (the payor) using a form or process that we've approved. This permission is called a Payor's PAD Agreement in Rule H1.
You need to make sure that your payor's PAD agreement meets the mandatory requirements set out in Appendix II of Rule H1 – Pre-Authorized Debits (PADs) (PDF, 796 KB) External link.
- Agreement date and signature
- A statement giving the business or organization the authority to debit a specific account
- PAD amount, timing and initiating act or event
- PAD type (personal or business)
- A statement indicating that the payor can cancel the PAD agreement
- A statement advising payors that they can get a sample cancellation form or other information on their right to cancel a PAD agreement from their financial institution or the Payments Canada website
- Contact information of the payee that the payor can use to make inquiries, obtain information and seek recourse in the event of an error or unauthorized PAD
- A standard statement about the recourses available to the payor
Other requirements may apply for PADs.
See a sample payor's PAD agreement (PDF, 1.13 MB) This link will open in a new window.
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You can set up a payor's PAD agreement in person, online or by phone. We need to review and approve the PAD agreement forms and your proposed procedures for verifying a payor's identity and authorization before they can be implemented.
The cancellation of a payor's PAD agreement does not change any existing obligations between a payor and a business under a broader contract for goods or services. For example, if a payor has signed a 1-year lease and initially agrees to make monthly payments by PAD, the payor can cancel the PAD agreement at any time, but must make arrangements with the business to use another form of payment.
For more information, visit the Payments Canada website External link.
The payor must receive a written notice about any change 10 calendar days before the next PAD.
However, if your payor's PAD agreement says that the amount can be changed through a direct action by the payor (such as instructions by phone), you don't need to send a notice.
Rule H1 states that the cancellation period that you can include in the payor's PAD agreement cannot exceed 30 calendar days. In practice, you must specify the cancellation period in business days (for example, 5 business days), as long as the period is less than 30 calendar days. For more information, see section 17 in Appendix I of Rule H1 – Pre-Authorized Debits (PADs) (PDF, 796 KB)
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