How to set up pre-authorized debits for your business

What EFT Rails does

You create each pre-authorized debit (PAD) through the API or in the dashboard, and EFT Rails sends it by electronic funds transfer (EFT) on the banking day you name, or the earliest it can. You hold the PAD agreement with your customer and send the confirmation and the pre-notifications. The API reference documents how to create and read payments. For an overview, read about pre-authorized debits.

Step 1: Get your customer's agreement

Get a PAD agreement from your customer before you debit their account. Every PAD must have an agreement containing the required terms.¹ It can be in writing, including an electronic document your customer controls, or recorded in another form that you can retrieve later.²

The agreement names the account, the amount and timing, how your customer cancels, and how to reach you, and it carries the recourse statement word for word.³ It also states whether the debits run at set intervals, happen once or are sporadic.⁴

Use the PAD agreement guide to prepare your agreement. Choose between a business PAD and a personal PAD, and see how sporadic PADs work when there is no regular schedule.

Step 2: Check who your customer is

Verify your customer's identity before they authorize the agreement. Their authorization is their consent after that check, using commercially reasonable methods for your kind of business, the amount, your payment volume and whether you already do business together.⁵

Step 3: Send the terms before the first debit

At least 10 calendar days before the first debit, send your customer a confirmation, which is a copy of the PAD agreement or a summary of its key terms. Your customer can waive the confirmation or shorten that period, and if they waive it, you have 5 calendar days after the first debit to send it.⁶ Read how to send PAD pre-notifications for later changes and variable amounts.

Step 4: Create the first debit

Create the debit for the day you want it processed. Your customer's bank cannot receive it before its Due Date, and the banks settle on the business day after the Due Date.⁷

Create it through the API or in the dashboard. For one debit entered by hand, use the Virtual Terminal in the dashboard. It emails your customer a receipt once the debit is sent.

Step 5: Tell your customer before a change

For debits at set intervals, send a pre-notification with the amount and date at least 10 calendar days before you change a fixed amount or the debit dates. Send one before every variable-amount debit after the first as well.⁸

Step 6: Handle what comes back

A debit returned for insufficient funds (NSF) or funds not cleared can be presented again once, within 30 calendar days, for the same amount.⁹ See how to handle NSF returns.

Your customer can claim a debit back if it did not follow the agreement, the agreement had been revoked or a required notice was not given. The window runs up to and including 90 calendar days after a personal debit, or 10 business days after a business debit.¹⁰ Read more about PAD dispute windows.

A returned debit shows as returned in the dashboard and the API.

Step 7: Keep records and handle changes

Keep an audit trail containing the PAD agreement, evidence of authorization and the information needed to retrieve or trace each debit for at least 12 months after the last debit under that agreement.¹¹

When your customer cancels, stop issuing new debits within 30 calendar days of their notice. You cannot debit again without a new agreement.¹² If your business name changes, give your customer at least 10 calendar days' written notice before the next debit.¹³

Changing your customer's bank account on file requires approval by a second user.