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Overview of authorizations

What is an authorization?

A pre-authorized debit agreement (PAD) is a written payment agreement form (electronic or paper) between the payor and payee. The authorization will outline the frequency, amounts (variable or set), and any additional information that is required.

In the United States, an Automated Clearing House (ACH) agreement is a written payment agreement form (electronic or paper) between the payor and payee. The authorization will outline the frequency, amounts (variable or set), and any additional information that is required.

Authorization for pre-authorized bank payments is required in the United States and Canada. As such, Rotessa has a number of tools that include all the required information to collect payments from your customers’ accounts.


What is an open PAD/ACH agreement?

Open PAD/ACH agreements are authorizations that don't have any set schedule or amount stated in the PAD/ACH agreement.

The payment schedule and amount should be stated and agreed upon in either a contract or another piece of documentation. Rotessa's default authorization forms are set as open PAD/ACH agreements.

An open PAD/ACH agreement must state the event that triggers a pre-authorized withdrawal.

The event that triggers a pre-authorized withdrawal could be something such as an invoice

What is a Personal agreement vs Business agreement?

Personal agreement means a PAD/ACH drawn on the account of a payor for payments such as, but not limited to, charitable donations, non-member investment contributions, mortgage instalments, utility bills, insurance premiums, membership fees, property taxes, credit card billings, lines of credit, loans and payment for other consumer goods or services.

Authorization forms made in Rotessa default to personal agreements.

Business agreement means a PAD/ACH drawn on the account of a payor for the payment of goods or services related to a business or commercial activity of the payor, including, but not limited to, payments between franchisees and franchisors, distributors and suppliers, and dealers and manufacturers.

In the event of a billing error, a payor with a personal agreement has 90 days to dispute and make a claim for reimbursement. Whereas, in the event of a billing error, a payor with a business agreement has 10 days to dispute and make a claim for reimbursement.

If you already have existing PAD/ACH agreements with your customers, you can use this to begin collecting payments. Ensure that your agreement has the following requirements:

Canadian requirements

  1. Date: The day of signing the agreement.
  2. Type of debit: Identify if this is a personal or business transaction.
  3. Amount and schedule: Outline whether the agreement is for variable amounts on a variable schedule or set amounts on a consistent schedule. If there is a specific event or schedule that triggers a transaction it needs to be included.
  4. Recourse/Reimbursement statement: The payor’s rights if an unauthorized debit is withdrawn from their account.
  5. Cancellation instructions: Describes how the payor can cancel their authorization.
  6. Authorization: Permission to withdraw from the payor’s account. For paper authorizations, a signature is required. For online authorizations, the payor must check the box.
  7. Account details: Bank, transit, and account number. These can be found on a void cheque.
  8. Notification process: Outline how payment will be communicated or include a statement that allows your payor to waive their right of pre-notification.
  9. Verification method: like micro deposits or Instant Bank Verification for online PADs.
  10. When using a third party payment processor such as Rotessa, you will need a statement that names your third-party processor.
  11. One-time transactions require their own PAD agreement, valid for only that transaction
  12. In an open agreement that does not have a specified date/amount, it must state the event that triggers a pre-authorized withdrawal.

US requirements

  1. Payor’s name
  2. Payor’s email address
  3. The account to be debited
  4. Checking or Savings account
  5. Bank Name
  6. Account number
  7. Routing number
  8. Not to be exceeded amount (for recurring payments)
  9. Frequency (for recurring payments)
  10. Start date (for recurring payments)
  11. For a US authorization form, your customer will need to provide a routing number and account number only. These numbers can be found on a void check.
  12. Verification method like micro deposits or Instant Bank Verification for online PADs

Notification requirements

If an authorization is for a set amount on a consistent schedule, they must be notified 10 calendar days prior to their first withdrawal, unless they waive their right to notification.

If an authorization is set for variable amounts, they must be notified 15 calendar days prior to their first withdrawal and 10 calendar days for all future variable amount withdrawals, unless they waive their right to notification.

If the payor waives their right to pre-notification, you must wait a minimum of three days before processing the first debit.

Authorization etiquette

Processing payments without an agreement is a violation of Rotessa’s payment policies and will result in legal action and suspension of your account.

Rotessa cannot cancel an authorization because authorizations are made between the payor and the payee. We are used as a payment vendor to facilitate transfers between the payor and the payee.

Direct communication between the payor and payee are necessary when cancelling any payments or pre-authorized debits. This also applies to any transaction refunds.