What is a pre authorized debit transaction?
A pre authorized debit transaction is a type of payment arrangement where a merchant or service provider has obtained explicit permission from a customer to deduct a specific amount from their bank account at a predetermined time. This arrangement is often used for recurring payments, such as subscriptions, memberships, or regular utility bills. In this article, we will delve into the details of pre authorized debit transactions, their benefits, and the steps involved in setting them up.
The process of a pre authorized debit transaction typically involves the following stages:
1. Obtaining Consent: The merchant or service provider must first obtain the customer’s explicit consent to set up a pre authorized debit. This can be done through a written agreement, electronic signature, or verbal consent, depending on the company’s policies and the nature of the transaction.
2. Authorization: Once consent is obtained, the customer authorizes the merchant to deduct funds from their account. This can be done by providing bank account details, such as account number and routing number, or by linking their account to a payment service provider.
3. Notification: Before each deduction, the merchant is required to provide the customer with advance notice of the transaction. This ensures that the customer is aware of the upcoming deduction and has the opportunity to cancel the pre authorized debit if desired.
4. Deduction: On the predetermined date, the merchant initiates the transaction, and the specified amount is deducted from the customer’s bank account. The funds are then transferred to the merchant’s account.
5. Confirmation: After the deduction, the merchant should provide the customer with confirmation of the transaction, including the amount deducted and the date of the deduction.
Benefits of pre authorized debit transactions:
1. Convenience: For customers, pre authorized debit transactions offer a convenient and hassle-free way to manage recurring payments. They eliminate the need to remember due dates and manually initiate payments each time.
2. Security: Since the customer provides explicit consent for the transaction, it reduces the risk of unauthorized deductions. Additionally, many payment service providers offer fraud protection for pre authorized debits.
3. Efficiency: For merchants, pre authorized debit transactions streamline the payment process, as they can automatically collect funds from customers without the need for constant follow-ups or reminders.
4. Predictability: Pre authorized debits provide merchants with a predictable revenue stream, making it easier to plan and budget their finances.
In conclusion, a pre authorized debit transaction is a secure and convenient payment method that benefits both customers and merchants. By understanding the process and its advantages, individuals and businesses can make informed decisions about whether to utilize this payment arrangement.
