What is a pre-authorized debit (PAD)

A pre-authorized debit (PAD) is the payor-authorized withdrawal of funds from the payor's bank account.

The term pre-authorized refers to an agreement between the payor and the payee. This relationship of this agreement can be business to business (B2B) or business to customer (B2C). In the agreement, the payor gives permission for the payee to withdraw money from their account based on the terms outlined. This can work for recurring payments on a set schedule or variable amounts.

The term debit refers to a withdrawal of funds from a bank account.

How do they work?

PADs work over a computerized network through Payment Canada’s federally-secured Automated Clearing Settlement System. This network connects all of Canada’s financial institutions.

PADs are also regulated by the Electronic Funds Transfer Act, which details the rights and liabilities of PADs. PADs also have a very clear mandate to ensure any unauthorized debit can easily be reversed through the bank.