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Introducing Pre-Authorized Debits

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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

Pre-Authorized Debit (PAD) is the scheme used for collecting Direct Debit payments from customers in Canada. It is administered by Payments Canada.

In 2016, Canada’s electronic funds transfer (EFT) payments reached an important milestone. They became the largest payment method in terms of transaction value, making up 45.4% of all payments in the country according to research from Payments Canada. EFT is an umbrella term encompassing electronic bill payments, direct deposits and Pre-Authorized Debits. We’ll focus on the latter in this guide.

In this guide, we aim to provide Canadian organisations with a clear walkthrough of the basic rules of Direct Debit, better known in Canada as the Pre-Authorized Debit (PAD) scheme. We’ll explain the key features of the PAD scheme, followed by detailed explanations of how to access it and how to choose the most suitable provider for your payment needs.

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What is a Pre-Authorized Debit?

In Canada, Pre-Authorized Debit (PAD) is the scheme used for collecting Direct Debit payments from customers. Payments Canada is the body in charge of administering the scheme. Just like Direct Debit in other countries, PAD is a bank-to-bank system, meaning that all communications take place directly between the banks. This happens by means of the Automated Clearing Settlement System (ACSS), rather than via the credit and debit card networks.

PAD vs AFT Debit

You may also have heard the term AFT Debit being used in the Canadian context, as well as PAD. AFT stands for Automated Funds Transfer. It encompasses a broader range of automated payment types than just PADs, including both Pre-Authorized Debit and Credit transactions. What all these transactions have in common is that they are all submitted to the ACSS via the banks. In a more general sense, AFTs also include transactions where financial institutions move money electronically between payers and payees. The term AFT comes from the AFT messaging standards used to process transactions in the ACSS system.

Another term you may sometimes read about is the afore-mentioned EFT (Electronic Funds Transfer). This refers to many different types of electronic transfers between bank accounts, but is sometimes used to refer specifically to Pre-Authorized Debit.

Pre-Authorized Debit vs ACH Debit

If you do business across both the US and Canada, you might already know about the US Direct Debit scheme, called ACH (Automated Clearing House) Debit. This is a method for receiving US dollar-denominated payments. The ACH system also works in Canada, allowing you to receive payments in US dollars from clients based in the US.

Your business would need a separate agreement with your bank in order to make this possible. If you choose to take this route, don’t forget that PAD and ACH Debit are two completely different schemes, with their own rules and submission requirements. Make sure you research each one in depth, especially for key points such as different pre-notification timings.