The world is constantly changing, and your payment methods should too. Imagine having to remember all of your bill payment dates and making each payment without being late. Surely, this is not only inconvenient but leaves you open to late payments which can incur some considerable charges.
To those who still do that-kudos. But we can point you to an easier alternative.
This article will look at the Pre-authorized Debit (PAD) Payment option and how you can use this in your everyday financial life.
What Is a Pre-authorized Debit ?
A PAD is a convenient way to pay your recurring bills. The idea is that you authorize a company to withdraw funds from your account come bill time. Think of bills like your mortgage, electricity, internet or gym being automatically paid each month without you having to take the effort of paying it yourself.
Using this payment method has become quite popular in Canada. A 2021 report by Payments Canada found that Electronic Funds transfers(which include direct deposits, electronic remittances, pre-authorized debits and other online bill payment transactions), lead all payment types in Canada in transactional value at 55%.
The fact is, more Canadians are opting to use this method to pay for their ongoing expenses.
Types of PADs
Surprisingly enough, there isn’t just one type of PAD that you can establish. As a PAD user, you are subject to four distinct PAD types which include:
Perhaps the most common PAD and one used in our example, the personal PADs are recurring payments from your bank account for any goods and services you purchased.
Business PADs, as referenced in the name, are used to arrange payments for goods and services between businesses. This could look like a retail business getting merchandise from a supplier.
Cash Management PADs
Cash management PADs deal exclusively with a company or closely affiliated businesses. In this case, a company would be able to transfer or reposition funds between these financial accounts. A common example of this is a transfer between a parent company and its subsidiary.
Fund Transfer PADs
Lastly, fund transfer PADs involve a user transferring funds from their personal bank account at one financial institution and depositing the money into another account at a different financial institution. Think of transfers to an investment account, registered savings plan or segregated fund.
Setting up A Pre-authorized Debit Payment Agreement
Signing up for a PAD can be simple but before you let just anybody withdraw from your account, you should know how a typical agreement is structured. Usually, a service provider should be offering a pre-authorized debit option when you are seeking a recurring service from them. In this case, you will be required to fill out a pre-authorized debit form, either via a paper form or electronically, which will ask for your personal and bank information.
All PAD agreements should contain the following elements:
- Date of agreement: This section may also include the customer’s signature alongside the date of the agreement. Knowing when your agreement starts and ends will help you identify errors if you are charged past the agreement date.
- Authorization to withdraw: This section grants authorization to withdraw from a specific account. According to Payments Canada, sometimes a void cheque may be requested to confirm the account information but it is not mandatory.
- Withdrawal amount: Plain and simple, this refers to how much will be withdrawn from a user’s account. You should take note that if the amount is fixed, the amount must be specified. Alternatively, if the amount is variable, like in the case of utility bills, the agreement should make that clear.
- Payment timing: There are two payment timing types to keep in mind. a) recurring payments which can be taken at set intervals (weekly, monthly, annually, etc.) or b) sporadic payments which occur on an irregular basis.
- Cancellation instructions: Cancellation instructions give you a way out of an agreement should you wish to discontinue the Pre-authorized debit payments.
- Contact information: In the event that you need to contact the biller, contact information should be displayed to allow you to forward any inquiries you may have.
- Recourse/reimbursement statement: If there is ever a dispute about any withdrawals not consistent with the agreement, information about what you can do should be included.
Cancelling a PAD
If after some time you wish to cancel the pre-authorized debit payments from your account, you may do so at any time. PADs are a payment method but this does not cancel your existing agreement with a service provider; it just ends the method by which you pay for the service. In the case of cancellation, your agreement should outline the cancellation procedure. If that is not listed in your agreement, you can simply notify the biller in writing and keep a copy of your cancellation letter. Once that is complete, the biller has 30 days to arrange cancellation of the agreement.
How to Deal With Payments You Did Not Authorize
What happens if you notice additional payments being withdrawn from your account that you did not approve? Generally speaking, you can contact your service provider immediately and arrange a refund if the following conditions are met:
- The withdrawal was made on either the wrong date or amount
- Your contract has already been cancelled
In the case of fund transfer PADs, you have 90 calendar days from the date that funds were withdrawn to notify your financial institution and get your money back.
Helpful Tips for Paying by Pre-authorized Debit
Now that you have a good idea about establishing a PAD agreement and using it as a payment method, here are some tips to make sure that you are protected:
- Check your account regularly: It is important to check your account regularly to ensure that you are being charged only what was agreed upon in your pre-authorized debit form
- Read the terms and conditions: This is true for all written contracts, but when you are paying through pre-authorized debit, reading the terms and conditions carefully is an important step to help you avoid authorizing anything that is against your agreement.
- Always keep a healthy amount of money in your account: Depending on how you look at it, this could be a benefit to you in more ways than one. By always making sure you have enough money in your account come bill time, you are practicing good money management skills that will help you financially long term. You also avoid getting charged any additional fees.
PADs are an excellent way to save you time when paying for recurring payments. With the knowledge you have now, it is not too late to set this payment method up for a number of your current bills.
What do you think? Have we convinced you into using the pre-authorized debit payment option? Let us know!