Last editedJan 20232 min read
What does it mean when you take a payment by authority? Whether you’ve seen this term on your own business invoice or are thinking of setting up a payment plan with a customer, it’s helpful to define it. So, what is payment by authority and how does it work? In Australia, recurring payments are taken by authority given by a customer to the merchant. It’s usually used in relation to credit card payments.
What is the meaning of payment by authority?
An Australian payment by authority is also known as a continuous payment authority, which is more common UK terminology. It refers to a type of recurring payment set up by the merchant to collect regular, recurring payments from a customer. Payments are taken using debit or credit card details with the full permission, or authority, of the customer. Recurring payment authorities are subject to all International Card Scheme rules for Mastercard and Visa.
The term is also sometimes used in relation to a direct debit authority. In this case, a merchant deducts funds from the customer’s account on a recurring basis through the Bulk Electronic Clearing System (BECS). In this case, payment by authority is dictated by BECS rules and the account holder can stop the recurring payments by speaking to their financial institution.
What is payment by authority used for?
Payment by authority is used to make recurring payments more convenient. With manual payments and invoicing, the customer needs to trigger payment each month. It’s often easier for service providers to simply pull the funds from the customer’s account or take a recurring card payment. Payment by authority is used for things like gym memberships, magazine subscriptions, mobile phone contracts, and for free trials.
It's also used to pay taxes via an Electronic Payment Authority. Once you’ve authorised the tax office to take payments after submitting your monthly or annual return, they can take an electronic transfer of funds. This ensures accurate tax allocation each month, helping businesses avoid non-payment penalties and other fees.
What is a proforma invoice?
Before your recurring payment by authority is taken each month, you might receive a preliminary bill. This is called a proforma invoice, which is used to request payment for goods and services before the business supplies them. When used in conjunction with payment by authority, it’s simply for a customer’s own records. This gives them a chance to cancel the payment before it’s taken out and ensures everyone’s on the same page.
Pros and cons of payment by authority for businesses
There are advantages and disadvantages for businesses who wish to take recurring payments this way. Once authorised by a customer, you can receive regular payments to maintain a steady, more predictable cash flow. Payment authorities are also flexible, giving businesses the chance to change the amount taken as needed. It’s also easy to get started, as the customer simply needs to provide their credit card or banking details and sign an authorisation form.
On the other hand, it’s important to follow all consumer protection rules when setting up a payment authority. In Australia, this means adhering to the New Code of Banking Practice, among others. Make sure your customers know exactly what they’re signing up for and be clear about upcoming payments by using proforma invoicing. Payment failures can also be an issue if you’re taking card payments. If the customer’s card details expire, for example, the payment won’t go through.
Ultimately, there are many reasons to consider setting up a payment by authority. If you want to reduce payment failure and improve cash flow, using BECS direct debit with GoCardless is the best option. It costs less than taking credit card payments, with less hassle and a straightforward fee structure. We handle the relationship with the banks on your behalf, so you can be sure you’re following all guidelines.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.