Pre-Authorized Payment Template

In plain language: Identifies the payor by full legal name and the payee by business name, and specifies the exact bank account — institution name, transit/routing number, and account number — authorized for debiting.

Common mistake: Recording only the last four digits of the account number on the authorization form. Payment processors and banks require the full account number to initiate an ACH or PAD entry; partial numbers cause processing failures.

In plain language: States the exact dollar amount (or the formula for calculating a variable amount) and the schedule — weekly, monthly, quarterly — on which debits will occur.

Common mistake: Using approximate language like 'approximately $X' for fixed-amount authorizations. Courts and payment networks require a specific, unambiguous amount — vague figures void the authorization.

In plain language: Specifies when the first authorized debit will occur and whether the authorization runs indefinitely or terminates on a defined date or event.

Common mistake: Leaving the end date blank on installment agreements. An open-ended authorization on a fixed-term loan creates a disputed overpayment risk if the payor doesn't cancel after the final installment.

In plain language: Requires the payee to provide advance written notice — typically 10–30 days — before changing the debit amount or schedule, and gives the payor an opportunity to cancel before the change takes effect.

Common mistake: Omitting the notice-of-change clause entirely. Payments Canada Rule H1 and the US NACHA operating rules both mandate pre-notification of amount changes — non-compliance exposes the payee to chargeback and indemnification liability.

In plain language: Sets out the fee the payee will charge — or pass through from the bank — when a debit attempt is returned for non-sufficient funds, and states how many retry attempts are permitted.

Common mistake: Setting an NSF fee without checking the maximum fee permitted in the applicable jurisdiction. Several US states and Canadian provinces cap NSF fees by statute — exceeding the cap voids fee collection and may trigger consumer-protection penalties.

In plain language: Describes exactly how the payor can cancel the authorization — written notice, minimum advance notice period, and the contact address to which notice must be sent.

Common mistake: Requiring more than 30 days' cancellation notice for a consumer PAD or ACH authorization. Payments Canada and NACHA consumer rules require that cancellation take effect within 10–30 business days — longer notice periods are unenforceable against consumers.

In plain language: Informs the payor of their right to dispute a debit they believe was unauthorized or incorrect, the time window for filing a dispute with their bank, and the process for obtaining a refund.

Common mistake: Omitting the dispute-rights disclosure entirely. Payments Canada Rule H1 and NACHA consumer rules both require a recourse statement — its absence renders the authorization non-compliant and exposes the payee to unlimited chargeback liability.

In plain language: Cross-references the contract, membership agreement, loan agreement, or lease that gives rise to the payment obligation, making clear that the PAD or ACH authorization supplements but does not replace that underlying document.

Common mistake: Omitting the underlying agreement reference and treating the PAD authorization as a standalone contract. Without the reference, a revoked authorization appears to extinguish the entire payment obligation rather than just the debit mechanism.

In plain language: Confirms that the payee will indemnify the payor's bank against any claims, losses, or costs arising from debits initiated in excess of or contrary to the authorization.

Common mistake: Reversing the indemnification so the payor indemnifies the payee's bank. The standard commercial practice and Payments Canada/NACHA rules require the originating party — the payee — to bear indemnification liability toward the receiving bank.

In plain language: Specifies which jurisdiction's law governs the authorization, confirms that the written authorization is the complete and final record of the payor's consent, and supersedes any prior verbal authorizations.

Common mistake: Choosing a governing law that does not match the payor's location. Consumer protection laws — including maximum NSF fees, notice periods, and dispute windows — apply based on where the consumer resides, not where the business is incorporated.

A pre-authorized payment agreement is a written authorization signed by a payor that permits a business to withdraw funds from the payor's bank account or charge a payment card on a recurring schedule. It specifies the amount, frequency, account details, and the payor's right to cancel. Without a signed authorization, bank debit networks — including ACH in the US and PAD in Canada — will treat any recurring debit as unauthorized and allow the payor's bank to reverse it.

Yes, in every major jurisdiction. In the US, NACHA's ACH operating rules require written or electronic authorization before initiating a recurring consumer debit. In Canada, Payments Canada Rule H1 mandates a signed PAD agreement before the first debit. In the UK and EU, Direct Debit and SEPA rules require a signed mandate. Operating recurring debits without a compliant authorization exposes the business to payment reversals, network fines, and potential consumer-protection penalties.

A Pre-Authorized Debit (PAD) is the Canadian equivalent of an ACH authorization in the US — both permit a business to pull funds from a customer's bank account on a recurring basis with prior written consent. The key differences are regulatory: Canadian PADs are governed by Payments Canada Rule H1, while US ACH debits are governed by NACHA operating rules and Regulation E. Dispute windows, notice periods, and NSF fee caps differ between the two schemes. Businesses operating in both countries need jurisdiction-specific authorization language.

Yes. Under NACHA consumer rules and Payments Canada Rule H1, a payor can revoke a pre-authorized payment authorization at any time by providing written notice to the payee, typically 10 business days before the next scheduled debit. Revocation of the authorization does not, however, cancel any underlying debt or contractual payment obligation — the payor remains liable for amounts owed under the governing agreement and must arrange an alternative payment method.

Retain signed authorizations for a minimum of 3 years after the last transaction under that authorization. NACHA recommends a 2-year minimum for ACH authorizations, but 3 years aligns with the standard audit and chargeback lookback period used by most payment processors and banks. In Canada, Payments Canada recommends retaining PAD agreements for the duration of the authorization plus 7 years.

When a debit is returned for non-sufficient funds, the payor's bank reverses the transaction, and the originating bank charges a return fee to the payee. The payee may also charge the payor a contractual NSF fee if the authorization form includes one, subject to any statutory cap in the payor's jurisdiction. Most payment networks permit up to two retry attempts within 10 business days of the original failed debit. Repeated NSF returns on the same account may result in the payee's bank restricting ACH origination privileges.

Yes. Electronic signatures are accepted under NACHA rules for ACH authorizations, Payments Canada guidelines for PADs, and eIDAS regulations for SEPA mandates, provided the e-signature platform captures a timestamp, IP address, and audit trail linking the signature to the specific document. The payor must also receive an electronic copy of the signed authorization immediately after execution. Some platforms require additional identity-verification steps for high-value recurring debits.

In the US, Regulation E gives consumers 60 days from the statement date to dispute an unauthorized ACH debit. In Canada, Payments Canada Rule H1 provides a 90-day window to dispute a PAD that was not authorized, and 10 business days to dispute a PAD that does not comply with the authorization terms. In the UK, the Direct Debit Guarantee gives consumers an unlimited right to claim a full refund for any unauthorized or incorrect direct debit charge.

For fixed-amount authorizations, a change in the debit amount requires either a new authorization form signed by the payor or written pre-notification at least 10 business days before the changed amount is debited — the specific requirement depends on your payment network and jurisdiction. For variable-amount authorizations that include a notification-of-amount clause, advance notice of each specific debit amount satisfies the authorization requirement without requiring a new signed form.