Pre-Authorized Debit (PAD) is the scheme used for collecting Direct Debit payments from customers in Canada. It is administered by Payments Canada.
PADs come in four different types, and it’s important to know what each one entails.
Business PADs - Drawn on the account of a business customer for payment of goods or services related to a business or commercial activity of the customer. This might include payments to suppliers or distributors.
Cash Management PADs - Drawn on a business account for the purpose of transferring, consolidating or repositioning funds between the account of one entity to another entity (where the accounts are held at different banks). This might be for the same business or closely affiliated businesses. For example, this could be a transfer between a parent company and its subsidiary.
Funds Transfer PADs - Here, an individual draws on their account in order to transfer funds from one account to another, where both accounts are held by the same person but at different banks. This could include transfers to registered savings plans, investment accounts, segregated funds, or other types of personal accounts.
Personal PADs - Finally, personal PADs are drawn on an individual’s account, for payments such as utility bills, membership fees, donations, credit card billings, or mortgage payments. Personal PADs are used when the payment does not fit into any of the other types of PAD.
Use cases for Pre-Authorized Debits
There are a wide variety of situations where Pre-Authorized Debit payments are commonly used to take payment from customers. If you’re a business or organisation that receives recurring payments from your customers, then using Pre-Authorized Debit can make your life much easier. Common examples of use cases include; utility bill payments, sports clubs and gyms taking subscription fees from their members, accountants or other service firms collecting a monthly retainer fee from their clients, or SaaS (software as a service) companies billing their users monthly for ongoing access to the software.