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Pre-Authorized Debit Agreements

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJun 20242 min read

In this section, we’ll walk you through the rules and processes for setting up and managing Pre-Authorized Debit agreements.

Pre-Authorized Debit agreements

Before you can start taking any payments from a customer, you’ll need to get a Pre-Authorized Debit agreement. This is an authorisation from your customer to collect future payments from their bank account. There are two types of Pre-Authorized Debit Agreements: one for recurring payments taken at set intervals (such as weekly or monthly) and another for sporadic payments.

Set-interval Pre-Authorized Debit Agreements

Each agreement will include the following points:

Future payments are authorized, so you can collect set or variable amounts from your customer according to the timing specified in the agreement.
‘Set-interval’ means occurring at set or predictable times, or upon the occurrence of certain events set out in the agreement (for example, triggered by the customer’s use of the service). Set-interval doesn’t necessarily mean that payment must be taken on the same day every month. A payment could be triggered by the customer’s use of a utility, with payment date depending on the billing period.
You must notify your customer about payments of varying amounts or timings before they are collected.
All payments are covered by the Payments Canada rules, which protect customers from payments taken in error.

Agreements can be written in English and/or French.

Sporadic Pre-Authorized Agreements

For sporadic payments (i.e. not collected on weekly, monthly, bi-monthly basis), the agreement must include provision for sporadic payments, in addition to the details for set-interval payments.
You will need authorisation from the customer before every Pre-Authorized Debit payment. In the initial agreement, the customer must be informed that the organisation taking payment is required to obtain this authorisation under the Pre-Authorized Debit rules.

If your organisation uses a payment processor to collect Pre-Authorized Debit payments, then this should be stated on the agreement along with the provider’s name.

The Pre-Authorized Debit rules and the rules of Payments Canada help protect the customer from payments taken in error or fraudulently. All payments must be taken in accordance with the customer’s PAD agreement.

Setting up a Pre-Authorized Debit agreement

Your customer must complete a Pre-Authorized Debit agreement form, either via a paper form, or electronically. If using the latter, customer details can be collected online, by email, or by phone. Phone agreements will require use of a bank approved script, with verbal rather than signed authorization

Mandatory Agreement Contents

Pre-Authorized Debit agreement forms are flexible in their layout and content, but the following details are mandatory:

Date of agreement
Customer signature
Authorisation to debit a specific bank account
PAD category (personal, business, funds transfer)
Amount and timing of payment
Information on how cancel the agreement
Contact information for the merchant (your organisation)
Recourse statement (informs the customer of their rights if a debit payment is not compliant, and directs them to further information through their bank or at payments.ca)

Managing your agreements

Once you’ve drafted the agreement, your sponsoring bank must approve its format, to ensure it complies with ACSS rules. Your bank must also approve your procedures for verifying a customer’s identity when entering an electronic agreement.

Once a customer has completed an agreement form and returned it to you, you’ll need to check the details then retain the form as proof that your customer has authorized a Pre-Authorized Debit. You must retain your customer’s Pre-Authorized Debit agreement for a minimum of 12 months following the last Pre-Authorized Debit payment processed.

Updating customer bank details

If a customer wants to update their bank details, we recommend that you ask them to complete a new agreement. This is a precaution to help you avoid potential difficulties if the customer later disputes a payment and you only have the agreement with their old banking information.