The Plain-English Guide to Pre-Authorized Debits (And How They Can Revolutionize Your Payment Collection)
Let’s cut straight to the real question.
What on earth are pre-authorized debits, and how do they work?
I’m glad you asked! Here's the short, sweet, plain-English answer...
Pre-authorized debits (PAD) are a way for you to collect payments from your customers debit account. If you pay a mortgage, loan, or subscription from your bank account automatically, you're probably using pre-authorized debits!
PADs are electronic, which means no more messing around with cash, cheques, or credit cards. The money goes from one bank account, to the other.
Why is this better?
That covers what a PAD is, but why are they better for recurring payments?
Okay, pre-authorized debits sound awesome right? They aren't just another way to collect payment, they're a way you can transform your payment collection.
Who uses them?
Short answer: businesses, organizations, and even individuals. Pre-authorized debits are an industry-standard way to collect recurring payments.
In Canada alone in 2015, the value of Electronic Funds Transfers (the technology that powers pre-authorized debits) totaled 3.97 trillion dollars. If those were Big Macs, you could stack them to the moon and back over 1,154 times. Yes, that's a strange comparison. Yes, I did the math.
How does it work?
You might be thinking, "That sounds great, but how does it actually work? Strange magic?"
It's a fair question.
Thankfully, there's no strange magic involved with pre-authorized debits. Just a lot of secure payment technology.
Your first step is to decide how you want to process your PADs; through a bank or with a third-party processor. Something we've often heard from our customers is that banks don't usually deal with smaller businesses. If that's the case with your bank, you'll need to find a third-party payment processor.
When you've found a payment processor, you need to enter an agreement with your customer to debit their account automatically. That agreement is your permission to withdraw money from their account. These agreements can be done on paper, or electronically.
After the agreement, you need to get your customer's transit, institution, and account numbers. The easiest way to do this is with a void cheque.
Once that's done, you can schedule the payments and set the amounts for your customers.
On the dates you select, your chosen payment processor sends a request to your customers bank. In that request is all the information about the payment.
The banks communicate with each other, and if everything is in order the payment will be transferred! Once that's done, the payment is deposited into your account. No paperwork, no headaches.
Is it right for you?
At this point, maybe you're wondering if pre-authorized debits are right for you.
If you need to collect recurring payments, yes they are!
There are a wide range of third-party payment processors on the market, giving almost anyone the ability to use PADs. Here are just a few of the businesses that use our service at Rotessa:
If you're getting tired of the headache of collecting payments, take a look at pre-authorized debits. You may just find the relief you've been looking for.
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