The Ultimate Guide to Credit Card Pre-Authorized Payments in Canada

Setting up pre-authorized payments can make paying for bills, services, or subscriptions easy and convenient. Merchants will automatically charge your payments to you without you having to lift a finger. The issue is that some people forget about these payments entirely (think, a Netflix subscription you forgot you had or a membership program you signed up to).

And if you’re using your credit card for these payments, then it’s essential that you’re paying off that monthly balance and not forgetting about the pre-authorized payments you’ve set up. When used responsibly, a pre-authorized payment on your credit card can be a big time saver and give you peace of mind that all your bills will be paid on time. 

What is a pre-authorized payment?

A pre-authorized payment is when you give a merchant authorization to automatically withdraw funds from your debit or credit card to cover a payment. These payments will come out on a set schedule that is determined by an agreement you make with the merchant.

Typically that is weekly, bi-weekly, monthly or annually. This payment could be a fixed amount each month, such as for a subscription service, or a variable amount based on product usage, such as a phone or electricity bill.

Many merchants offer pre-authorized payments as a payment option. It’s incredibly beneficial for providers as they know they will always receive their payments on time and won’t have to chase up customers.

There are two main reasons people choose to set up pre-authorized payments.

The first is for convenience. As pre-authorized payments come out automatically, you won’t have to worry about logging in manually to make every payment. Instead, you simply need to make one monthly payment, which is paying off your credit card balance (unless you’re using your debit account).

The second reason is to avoid missing payments. Often, missed payments can lead to you paying late fees, so a pre-authorized payment is an excellent way to prevent that. Plus, you won’t experience any gaps in service because you forgot to pay your bill.

Is it safe to use pre-authorized payments on credit cards?

Using pre-authorized payments is entirely safe and secure, as long as you use them responsibly. In terms of the safety of your money, it’s just as safe as if you were making the payment to the merchant yourself.

All payments are secure and encrypted through your credit card provider, with strict guidelines to prevent fraud. Check out different Canadian credit cards options to see if pre-authorized payments are available and the different measures they take to protect your account.

Even with that protection, there are still risks to pre-authorized payments. The reality is that mistakes do happen, and sometimes merchants may overcharge you on your pre-authorized payments. Unless you keep a close eye on this, you could end up paying out money you didn’t even owe.

And even if you notice and dispute the charges, it can be harder to get back money once you’ve already paid. The fewer pre-authorized payments you have set up, the easier it is to keep an eye on them and the safer they are. But if you let it get out of hand, you may not even remember where your money is going.

Some credit cards give you cash back or reward points for recurring bills. Of course, double check with the card’s policy about what it classifies

How to add a pre-authorized payment

Each merchant will have a different process for setting up pre-authorized payments, but regardless, you will need to sign a contract stating your agreement to the terms. These days, you can typically add pre-authorized payments online, while some merchants may still require you to sign a paper contract and send it in. The contract will include any details surrounding your pre-authorized payments and usually have steps to cancel them.

To add a pre-authorized payment, head to the merchant account page and log in. Your account page will look different for each merchant, but you’ll need to find the area of your profile where you can set up payment methods.

Here, you can set up your preferred payment method, which could include a debit card, credit card, or pre-authorized. I may also appear as “direct debit.” Once you choose pre-authorized as your payment method, you will then receive and sign the contract, and your payments will begin coming out automatically as agreed.

Do pre-authorized payments stop if you get a new credit card?

If your credit card is stolen or lost, you’ll need to cancel it and request a new one. Your credit card may also expire, and you’ll receive a card with a new number. But will all your pre-authorized payments stop once you have a new credit card? The answer is… it depends.

Some credit cards have a credit card updater program, which automatically sends merchants your new credit card details. For Mastercard, this is called the Automatic Billing Updater, and for Visa, it’s called the Visa Account Updater.

To determine if you’re enrolled in this program, you’ll likely need to look through your cardholder agreement in detail since it’s not always easy to find. So, don’t assume pre-authorized payments will stop when your credit card expires. That said, you can opt-out of the program if you want, you’ll just need to speak to your credit card issuer.

But it gets even more confusing since not all merchants are part of the credit card updater program. Merchants need to pay a fee for this, but there is no way of knowing for sure whether the merchant is enrolled or not without contacting them directly.

The reality is that you may need to contact any merchants you have pre-authorized payments with to check if they need your new account details or not. So, no, pre-authorized payments will not necessarily stop if you get a new credit card, although some likely will.

What it is a business credit card?

Let’s say that your employee charges a recurring bill payment or pre-authorized payment to your business credit card. What happens if you lose that employee? Much like with personal credit cards, you have to cancel the pre-authorized payment. Just cancelling the supplementary card is not enough.

How to cancel pre-authorized payments

There are many different reasons that you might want to cancel your pre-authorized payments. If you find that a merchant is constantly making mistakes, you may want to switch back to manual payments so that you can check your bills before payment. You may also decide to cancel a subscription or membership for a service you aren’t using anymore, so you need to stop the payments.

If you set up pre-authorized payments online, then you can likely cancel them online as well. The first step is to check your original contract, which should give cancellation instructions. This may involve contacting the merchant directly, or it may be as simple as changing the payment method on your merchant account profile.

If so, you can either change your payment method to another card or cancel it entirely if you are no longer in need of the service or product. Regardless, we always recommend sending an email or written request as well, asking for confirmation in writing. That way, you have a copy for your records if anything goes wrong with the cancellation.

You can also speak to your credit card company directly as an extra layer of protection to let them know you cancelled the pre-authorized payment so that they flag any future charges.

Pros and cons of pre-authorized credit card payments

There are both advantages and disadvantages of pre-authorized payments. These include:

Pre-authorized payments: the takeaways

Using pre-authorized payments on your credit card is a great way to give you peace of mind that your bills will always be on time. They are also very convenient and mean you’ll only have to worry about making one monthly payment, which is paying off the balance on your credit card.

Just remember that merchants can make mistakes, so even though these payments run on autopilot, it’s still essential to check that your bills match the amount charged to your card. When used responsibly and with care, pre-authorized payments on credit cards are a fantastic option for Canadians.