How Can Businesses Use Pre-Authorized Debits


Generally speaking, businesses require adequate financial resources to cover their daily operational expenses. Without enough capital, they may be unable to pay their bills, which can affect their company’s operational efficiency and productivity. 

For this reason, they need steady cash flows to keep their businesses running. In order to do that, business owners should learn how to simplify payments to ensure better cash flow. This is where accepting credit and debit card payments enter the picture. 

However, although going cashless with credit and debit cards can be convenient for the customers, it can be disadvantageous to business owners. This is because credit and debit card payments can be costly due to high fees. Thankfully, there’s an easy and cost-effective payment solution: the pre-authorized debits for businesses.  

Continue reading this article to learn how businesses can use pre-authorized debits.  

What Are Pre-Authorized Debits? 

Essentially, pre-authorized debits or PAD refer to a scheme used for collecting debit payments directly from customers. It allows banks and other financial institutions to withdraw money from a customer’s bank account whenever a payment is due regularly.  

Using pre-authorized debits can be beneficial for businesses as they won’t have to wait for the customers to pay the invoice. The funds will be directly obtained from their bank accounts, streamlining the payments and ensuring better cash flow.  

How Can Businesses Use Pre-Authorized Debits?

To get started with pre-authorized debits, businesses should familiarize themselves with the basic steps involved in facilitating debits from a customer’s bank account. These steps can include: 

  • Set Up A Third-Party Payment Processor For PADs
See also  How To Choose The Right International Cpa Firm For Your Business Needs

To ensure a seamless and convenient payment transaction, business owners should look for a payment processor that integrates the payment form into their accounting software

Also, they should consider the one which handles the logistics aspect of the transaction and has security protocols to ensure the transaction is legitimate or safe. Therefore, to ensure they choose the right payment processor, it’s important for business owners to perform thorough research to make an informed decision. 

On the other hand, it can be hard to choose the right payment processor, especially if you want to learn more about this payment method and get the most out of it. Hence, reading some reliable information like and other similar resources online is recommended before making a decision. 

  • Collect Information And Obtain Authorization 

Obtain the customer’s personal and banking information using a paper form, which is also known as the PAD agreement. In most cases, this agreement is provided by a bank or a third-party PAD processor, which is responsible for setting up the payments as stated in the said form.

However, if the bank or payment processor doesn’t provide a PAD authorization form, the businesses need to develop their own authorization form with all the necessary details. Moreover, obtaining information and authorization from customers can be done manually, over the phone, or online. 

For instance, the customers can come to the physical stores and fill out an authorization form and submit it to the manager. If they can’t come to the physical stores, business owners can collect their information by talking to them over the phone. 

See also  Navigating the Granular Landscape: Powder Handling Systems in the F&B Industry

Lastly, if the businesses have websites or digital platforms, they can also gather certain information for PAD by asking customers to fill in an online form. 

  • Set Up Flexible Payment Schedules  

man pays with smart phone on motorcycle

Once the information and authorization are ready, the businesses can now use PADs to set up flexible payment schedules for their customers. They can seek help from their chosen third-party payment processors to do the process. Depending on the processor they choose to work with, they can also set reminders for customers who agree to pay on an installment basis.

Additionally, with PAD agreements, business owners don’t need to worry about how customers pay for their recurring transactions. Instead of creating invoices and requesting payments every time a transaction is made, pre-authorized debits can save time by helping businesses get paid right away without delays.  

With all these things being said, using pre-authorized debits doesn’t have to be difficult for businesses. 

How Can Businesses Benefit From Pre-Authorized Debits?

Typically, there are many ways businesses can benefit from pre-authorized debits. These can include: 

  • Avoid High Credit Card Fees And Limits 

Business owners can make the most out of pre-authorized debits by getting rid of high credit card fees and limits. With PAD agreements with the customers, they can save more money on credit fees. 

Unlike credit card payments, pre-authorized debits don’t come with high fees as the funds are withdrawn directly from the customer’s bank account. Moreover, business owners can use PADs to avoid high credit card limits. 

In some cases, credit card payments might not work due to the high limit, especially if the customer makes a large transaction. When this happens, they end up using cheques and wire transfers which might take more time to get posted to the company’s bank account.  

  • Avoid Putting Cash Flow Off Balance  
See also  Imperial Gas and Oil Company: The First Canadian Company to Own a Pipeline System

Dealing with receivables can be challenging for businesses, especially if customers don’t pay on time. This is where pre-authorized debits come into play. 

With this payment scheme, business owners won’t have to worry about too many receivables because payments are processed when they’re due. The payment will be directly withdrawn from the customer’s bank account, so businesses can avoid putting their cash flow off balance.  

Final Thoughts  

In today’s modern world, payment methods aren’t only limited to credit and debit cards, cheque issuance, and wire transfers. In fact, requesting payments from customers can also be done through pre-authorized debits. 

However, unlike other payment methods, PADs have more essential benefits for businesses. By keeping the information mentioned above in mind, business owners will know exactly how to use pre-authorized debits to their advantage.  

Scroll to Top