Pre-authorized debit of royalties (PAD)

The Canadian Franchise Association lists ongoing royalties among the fees a franchisee pays the franchisor. A franchisor can collect them by pre-authorized debit: the franchisee, as payor, authorizes the franchisor, as payee, to issue PADs against its account.

What Rule H1 says

Payments Canada, legally the Canadian Payments Association, makes Rule H1 under the Canadian Payments Act. Rule H1 defines a Business PAD as a PAD for goods or services related to the payor’s business, including payments between franchisees and franchisors. PADs may be for fixed or variable amounts, and the payor’s PAD agreement is a continuing but revocable authority. For PADs recurring at set intervals, section 17 requires pre-notification of changes in a fixed amount or payment date and of each variable amount after the first, subject to the exceptions in section 18; under section 19 the payor and payee may agree to reduce or waive it.

What to check or ask

• Which payments the franchise agreement requires you to authorize by PAD
• Whether the PAD authority you sign waives or reduces pre-notification of changes
• How the authority can be cancelled, and what the franchise agreement says if you do
• On a sale, who signs the new authority for the buyer’s account

Add these to your franchise agreement checks.