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PAD Agreements: What's Required Under Payments Canada Rules
A Pre-Authorized Debit (PAD) is any arrangement where you pull funds from a customer's bank account on a schedule. Monthly software subscriptions, gym memberships, professional service retainers, storage unit rentals — if you're debiting a Canadian bank account, you're doing PADs.
Payments Canada's Rule H1 governs PADs. The agreement you have with your customer must include specific elements, or the customer can reverse any PAD transaction — even after the service has been provided.
Mandatory PAD Agreement Elements (Payments Canada Rule H1)
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Amount and frequency The agreement must state either a fixed dollar amount per period, or how the amount is determined. "Monthly billing based on usage" is acceptable if the calculation method is clear. "An amount at our discretion" is not.
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Start date When will the first debit occur? The agreement must specify a date, or a clear trigger (e.g., "first debit on the date you complete enrollment").
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Notice period for variable amounts If the amount can change, you must give 10 days advance notice before a different amount is debited. Most processors handle this via email notifications.
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Cancellation rights The agreement must specify that the customer can cancel at any time by providing X days' notice (your business sets this, but it must be stated). You cannot require customers to call to cancel — written/electronic cancellation must be an option.
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Recourse/dispute process The customer must be told how to contact you about disputes. Standard language: "For questions or disputes, contact [business name] at [email/phone]."
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Account holder's signature or electronic acceptance The agreement must be signed — wet signature, electronic signature, or a verifiable click-to-accept where you can demonstrate acceptance (timestamp, IP address, email confirmation).
Here is sample PAD authorization language that meets these requirements:
For credit card recurring billing (not PAD), you need explicit consent that the customer authorizes recurring charges and understands they can cancel. Most subscription processors (Stripe Billing, Helcim subscriptions) capture this consent during checkout and store it in your records — but make sure the checkout language is clear. "Subscribe and be billed $49/month" is fine. Burying a subscription in small print is not fine and leads to chargebacks.
Which Processors Support Subscription Billing in Canada
| Processor | Subscription Support | PAD (Bank Debit) | Monthly Fee | Best For |
|---|---|---|---|---|
| Stripe Billing | Full-featured: trials, proration, tiered pricing, usage-based billing | Yes (Stripe's Canadian pre-authorized debit) | 0.5–0.8% of recurring revenue (Billing add-on) | SaaS, subscription boxes, any tech-savvy setup |
| Helcim | Recurring invoice templates, card-on-file billing | Limited — primarily card-based recurring | No monthly fee; interchange-plus processing | Professional services, B2B retainers |
| Moneris | Recurring billing available on most plans | Yes (Moneris recurring ACH/EFT) | ~$15–$25/mo + transaction fees | Established businesses with Moneris terminals |
| Rotessa | PAD-only (no card processing) | Yes — purpose-built for Canadian PADs | ~$20/mo + $0.85/transaction | Non-profits, fitness studios, businesses wanting pure PAD billing |
| PaySimple / Plooto | Invoice-based recurring | Yes | ~$49/mo | B2B invoice billing, accounts receivable automation |
Stripe Billing for Canadian Subscriptions Most Flexible
Stripe Billing is the most capable subscription engine for Canadian businesses that want flexibility. You can create free trials, set up monthly/annual/custom billing cycles, handle mid-cycle plan changes with proration, and bill based on usage (units consumed, seats, API calls). It handles PAD via Stripe's Canadian bank debit integration and card-on-file for credit card subscribers.
The Billing add-on (0.5% per transaction on the basic plan) is additional to Stripe's standard processing fee — a $100/month subscription would cost $2.90 + $0.30 (processing) + $0.50 (Billing) = $3.70 in fees, an effective rate of 3.7%. This is higher than PAD-only options but includes full dunning, retry logic, and portal management.
Automatic Retries on Failed Payments
Payment failures in subscription businesses fall into two categories: hard declines (card reported stolen, account closed — don't retry) and soft declines (insufficient funds, temporary bank issue — retry with a smart schedule).
Stripe's Smart Retries: Stripe Billing includes machine-learning-based retry scheduling. Instead of retrying on a fixed schedule (Day 1, Day 3, Day 7), Stripe analyzes patterns across millions of transactions to retry when success probability is highest — typically weekdays mid-morning when customers' bank accounts are most likely to have cleared. This recovers 20–30% more failed payments than fixed retry schedules.
Helcim: Helcim's recurring billing does not have automatic retry logic as sophisticated as Stripe. Failed recurring invoices send a notification but don't retry automatically unless you've configured it. Manual follow-up is required for most failures.
Moneris: Moneris's recurring billing retries up to 3 times on a configurable schedule. Not ML-based, but functional for most use cases.
For PAD failures (NSF): When a bank account debit fails due to insufficient funds, you're charged an NSF fee by your PAD provider (typically $5–$15). You can — and should — pass this to the customer in your PAD agreement language. Under Payments Canada rules, NSF fees must be disclosed in the original PAD agreement to be collectible.
Dunning Strategies That Actually Work
"Dunning" is the process of recovering failed subscription payments. Most involuntary churn (customers who didn't intentionally cancel but whose payment failed) is recoverable with a good dunning sequence.
The most effective recovery tactic: In-app or service-level prompts. An email about a failed payment is easy to ignore. A banner inside the software the customer is actively using — "Your payment failed. Update your card to keep access" — converts significantly better. If your subscription is delivered via an app or portal, add an in-product alert.
Cancellation Handling
Under Payments Canada Rule H1 (for PADs), customers must be able to cancel without unreasonable barriers. Requiring a phone call to cancel is not technically prohibited for credit card subscriptions, but it generates chargebacks and complaints. For PADs, electronic cancellation must be an option.
Best practices for Canadian subscription businesses:
- Self-serve cancellation portal: Stripe Billing's Customer Portal handles this automatically. Customers can cancel, pause, or change plans without contacting you.
- Retention offers at cancellation: When a customer initiates cancellation, present an offer — one month free, a downgrade to a cheaper plan, or a pause option. Exit surveys to capture why they're leaving are valuable for product improvement.
- Clear final billing: When a customer cancels, send a confirmation email stating the last billing date, what they'll still have access to until, and confirmation that no further charges will occur. This prevents "I thought I cancelled" chargebacks.
- Data retention policy: State clearly in your terms when their data is deleted after cancellation (if applicable). Many Canadians are aware of their rights under PIPEDA and will ask.
GST/HST on Recurring Charges
If your business is GST/HST registered, you need to charge tax on recurring billing the same way you would on one-time transactions. The rules are identical — it's the ongoing administration that gets complicated.
What's taxable: Most subscription services, SaaS products, membership fees, and service retainers are subject to GST/HST. The tax rate depends on where your customer is located — 5% GST for Alberta, 13% HST for Ontario, 15% HST for Atlantic provinces.
What's exempt: Financial services, most insurance, long-term residential rent. If your subscription involves only exempt supplies, you don't charge GST/HST (and generally can't claim input tax credits either).
Invoice requirements for recurring billing: Each billing cycle should generate an invoice that shows the subscription amount, GST/HST amount, your GST/HST registration number, and the billing period. Stripe Billing can generate these automatically — configure your tax settings in the Stripe dashboard and it will calculate and display taxes on invoices. Ensure "CA" is selected as the tax country and your GST/HST registration number is entered.
💡 GST/HST on subscription billing: practical setup
In Stripe Tax (add-on product): enable automatic tax calculation, enter your GST/HST registration number, and set product tax codes appropriately. Stripe will calculate the correct provincial tax rate based on the customer's billing address. For Helcim, configure tax rates in the recurring invoice template. For Moneris, tax configuration is part of your merchant account setup — contact Moneris support to enable recurring tax calculation. See our full GST/HST payment processing guide.