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Paying bills can be tedious and time-consuming, but there are things you can do to make it easier, starting with setting up automated payments. Putting your recurring payments on autopilot can make paying your billsless of a headache and free up time so you can focus on managing other aspects of your financial life.
If you’re not currently using automatic bill payment, you may be wondering what all the fuss is about. Here’s a closer look at what automated payments are, how they work and the pros and cons of incorporating theminto your financial life.
What Is an Automated Payment?
An automated payment is essentially what it sounds like: a payment that’s automatically sent to one of your billers from your bank account or credit card account. You can authorize an automatic bill payment to be made using your debit card, credit card, checking account, savings account or money market account. The amount due for the payment is collected automatically by the biller according to your payment schedule.
Automated payments can be used to pay different types of bills. For example, you may be able to use automatic bill payments to pay your:
- Utility bills
- Cell phone bill
- Streaming subscriptions
- Credit card bills
- Auto loan payment
- Student loan payments
Keep in mind that some billers may not allow for automated payments. For example, say you pay a lawn care company to cut your grass once a month. If it’s a small local business, they might not be equipped to accept automated payments. When a biller doesn’t accept recurring payments, you may have to set up online bill payments manually, pay by phone or mail a paper check.
How Does Automatic Bill Payment Work?
Automated payments can be processed in one of two ways, depending on how you pay.
First, you can make automated payments via ACH transactions. ACH stands for Automated Clearing House, and it refers to a form of electronic funds transfer, or EFT, to or from a bank account.
When you set up automatic bill payment using your bank or credit union’s online bill payment system, for example, your biller gets paid via an ACH transfer. You tell the bank or credit union how much to pay and when to pay it each month. The bank then authorizes that amount to be deducted from your selected account each month and transferred to the company you need to pay.
The second way to set up automated payments is by using your credit card. For instance, if you need to pay your Netflix or Hulu subscription each month, you could set up anautomatic payment allowing those fees to be charged to your credit card.
There are three ways to set up automatic bill payment, depending on which biller you want to pay. You can schedule automated payments:
- Through your bank’s online bill payment service
- Directly with the biller
- Using your credit card
The process works slightly differently for all three.
With your bank, for example, you’d have to log on to your online or mobile banking app and tell the bank which biller to pay, how much to pay, when to make the payment and which account the money should be deducted from. If you choose instead to pay the bill directly to the biller, you would provide the biller with your bank account information (the routing and account numbers) so the money can be drafted automatically on the bill’s due date.
For automatic payments made with a credit card, you would give the biller your credit card information, including the card number, expiration date and CVV. The biller would then process a charge against your credit card for the amount due each month. Then, instead of making a payment to the biller, you would make a payment to your credit card company to apply to your balance.
Automated Payments in Action
If you’re still not clear on how automatic paymentsfor bills work, here’s an example.
Say you have student loansand your student loan serviceroffers an interest rate discount when you set up automatic bill payments. Because you want to get your loans paid off as quickly as possible and save a little money on interest while you’re at it, you decide to sign up.
To do so, you’d need to log in to your student loan account through your loan servicer’s website. From there, you would navigate to your payment options menu and select automatic payments. You would then plug in your payment information. If you’re paying with your bank account, you’d need to give your loan servicer both your account number and your bank’s routing number. Your payments would then be deducted from your account each month according to the due date set by your loan servicer. And, in the meantime, you get a discount on your interest rate.
Pros and Cons of Automatic Bill Payment
Automating bill payments has both advantages and disadvantages. Looking at both sides can help you decide if putting your bills on autopilot is the right move for you.
- Setting up automated payments using a bank account or credit card isn’t difficult to do.
- You can save time, since you don’t have to manually pay bills or write checks each month.
- Automated payments may save you some money if they mean you’re ordering paper checks or money orders from your bank less often.
- You can avoid potential damage to your credit scorefrom late or missed payments when bill payments are automatically made by the due date.
- Automatic bill payment also can help you avoid costly late fees and penalties.
- Once you get in the habit of making bill payments automatically, it may become easier to manage your budget and spending, since you know exactly when money is coming out of your account.
- Automating payments could put you at risk of overdrafting your account if you’re not keeping an eye on your balances.
- Having an automatic payment returned for nonsufficient funds could lead to steep fees.
- Putting recurring payments on autopilot may encourage you to become more hands-off with your money, which means bills or overspending could slip through the cracks.
- Not every biller may be able to accept automatic bill payment.
- If you’re paying using your credit card or debit card, you’ll need to remember to update your information when the card expires; otherwise, your automatic payment may not be processed.
- Forgetting about an automatic bill payment you’ve put in place means you could continue to be charged for services that you no longer use.
If you want to stop an automated payment you’ve set up, you have the right to do so. You can contact the biller first if you’ve set up automatic payments directly.
If you set up the automatic bill payment through your bank or credit union’s online bill pay system, you’ll have to log in to your online or mobile banking to cancel them. Once you cancel an automatic payment made with your bank account or credit card, it’s important to continue monitoring your account activity to make sure no new payments are processed.
When Would It Not Make Sense to Automate Bill Payments?
While automated payments can make your financial life easier in many ways, they aren’t always a perfect fit for every situation. For example, you may not be keen on the idea of money being deducted from your checking account automatically if:
- You’re self-employedand have irregular incomeeach month.
- You don’t always keep a cash buffer in your bank account to cover unexpected expenses.
- You’ve lost your job or are looking for work and don’t have a steady paycheck.
- You struggle with keeping trackof spending and budgeting.
Making an automatic bill payment to a credit card also can be problematic if you don’t pay your credit card bill in full each month. Scheduling recurring payments for streaming services, gym memberships or utility bills may not seem like a big deal. But those payments can quickly add up to a sizable balance on your card if you’re only paying the minimum due each month. Once you add the interest charges in, the convenience of the automated payments gets wiped out by the extra cost.
How to Manage Your Automatic Bill Payment
If you’re ready to use automated payments to make your financial life easier, there are a few things to keep in mind. These tips can help you make the most of automatic bill pay:
- Set up a bill payment calendar or use payment reminders so you’re aware of when bills are due to be paid.
- Keep a list of your bills that are paid using automatic payments and the ones that are not.
- Set up banking alertsto notify you when your balance is getting low to help avoid the potential for overdrafts when an automatic bill payment is processed.
- Create alerts for your credit cardsto notify you when a payment is charged to your card.
- Log in to your online or mobile banking at least once a week to check your balance and review your account for any suspicious payment activity, and then do the same for your credit cards.
- Remember to update your debit or credit card information for your automatic bill payment when you’re issued a new card because the old one has expired or been lost or stolen.
Automating your recurring payments can be a good way to simplify and organize your finances. Remember, however, that you still need to review your budget and keep tabs on your spending to maintain good financial health.
What is automatic bill paying and how does it work? ›
An automatic bill payment occurs when money is automatically transferred on a scheduled date to pay a recurring bill, such as a mortgage, credit card, or utility bill. Individuals can set up an automatic bill payment through their online checking account, brokerage, or mutual fund to pay their monthly bills.Why is it important to do automatic payments on your bills? ›
Better credit score
In addition to comfort and economies of time and money, automatic bill payments can help a customer improve their credit score by making regular, timely payments to vendors and avoid late fees and penalties.
Automatic bill payment. service by which a bank deducts a payment from your account and transfers the funds to the appropriate companies. This service requires a bank customer to authorize preset amounts of monthly expenses.What happens if you don't have enough money for an automatic payment? ›
You could get hit with fees: And if you don't have enough money in your account to cover automatic payments, you could get hit with fees from both your financial institution and the vendor.What is automatic payment run in simple words? ›
Automatic Payment Program (APP) serves the purpose of posting accounts payable like payment to a vendor based on vendor invoices automatically. APP is used to find out due/overdue invoices and to process a list of customer and vendor invoices to make payments in one go.Which 3 payment types can be used as an autopay method? ›
You can authorize an automatic bill payment to be made using your debit card, credit card, checking account, savings account or money market account. The amount due for the payment is collected automatically by the biller according to your payment schedule.What are some advantages and disadvantages of using automatic bill payments? ›
- Pro: On-Time Payments. Automatic bill pay means your bills are scheduled to be paid automatically, and on time, every month. ...
- Con: Potential Overdraft Fees. ...
- Pro: Builds Credit. ...
- Con: Potential Billing Mistakes. ...
- Con: Potential Identity Theft. ...
- Pro: Good for the Environment.
For this reason, experts suggest using autopay for every one of your credit card bills. As long as you know you have the expected money in your checking account each month (to prevent any overdraft fees), autopay is one of the easiest ways to streamline your finances and sleep better at night.Is automatic bill pay a good idea? ›
Putting your bills on autopay can ensure never forgetting a due date, which minimizes the risk of late fees and dings on your credit report. But although automatic payments can save time and streamline your personal finances, it isn't the right choice for every expense.What are two ways to automate bill paying? ›
- Using AI-powered software to scan invoices for line items, vendor payment details, and more to speed up your month-end book closing.
- Setting up autopay on everyday business expenses such as rent, SaaS software, and other fixed monthly payments.
What is the difference between a bill payment service and an automatic payment? ›
The main difference between auto pay vs bill pay is that, with bill pay, you are the one initiating the payment, while with auto pay, the vendor initiates the charge to your credit or debit card. Another difference is that, with auto pay, you are authorizing the vendor to charge your card on a recurring basis.What type of payment is bill pay? ›
Online bill pay is an electronic payment service offered by many banks, credit unions and bill-pay services. It allows consumers to make one-time or recurring bill payments through a website or app.What happens if my autopay is more than my balance? ›
You can spend the amount you overpaid with during your next billing cycle. This is easy to do if you use your card frequently. If you don't use your credit card often, it's better to request a refund by calling the number on the back of your card.What are the dangers of autopay? ›
- Overdrafting your account. ...
- Forgetting to cancel services you're not using. ...
- Gradually spending more because you're not watching your accounts. ...
- Not noticing extra charges.
Overdraft Risk: Automatic payments do have some drawbacks. If you're not carefully tracking how much you spend each month and making sure you have enough money in your account to cover your automatic payments, you could forget about a large upcoming payment and end up overdrawing your account.How long does an automatic payment take? ›
Depending on the payee, your payee will receive the payment within two to five business days.What is the most commonly used method of payment? ›
The most common payment methods are: Credit and debit card: This is one of the most commonly used and oldest payment methods worldwide.How does a bill payment work? ›
Bill pay services are usually a free feature of bank accounts, typically checking accounts. After enrolling and providing your bank with your bill provider's information, your bank will then pay your bills on time, deducting the bill payment from the funds in your account.Why do companies want you to use auto pay? ›
By far, the biggest benefit is that it brings in more cash flow. When customers know that they can automatically pay their bill each month without having to worry about late fees or penalties, they are more likely to stick with your company and less likely to go elsewhere.What is the safest way to make automatic payments? ›
Set it up as online bill pay through either your bank or credit card. Do NOT use automated debit transactions. Set up alerts in advance of your bill due dates to make sure you have money to cover the bills. Always check your statements carefully for incorrect, duplicate or fraudulent transactions.
What is the safest way to pay bills? ›
The safest method of payment for paying bills is to use a credit card. That's because a credit card number does not give anyone a way to get access to your cash. With a credit card number, they can make a charge on your account. But credit cards offer strong protections from fraud and unauthorized charges.What bills should you never put on autopay? ›
Don't use automatic payments for bills where the total fluctuates each time: think utility bills and cable bills that could end up being a different total each month. You should also avoid paying certain bills with cash—including utility bills.What is the smartest way to pay bills? ›
Paying by Direct Debit means your bills are paid on time, so you'll avoid late-payment charges. Some companies offer discounts for customers who pay by Direct Debit.How do you automate a billing process? ›
- Research industry-specific billing software. ...
- Ensure integration with existing accounting software. ...
- Migrate customer payment data. ...
- Set up a customer payment portal. ...
- Customize invoices. ...
- Review transactions regularly.
- Potential Cost. Some companies will charge you a fee, and since automatic payments actually save them money, it's a very sneaky tactic. ...
- Losing Track. ...
- Overdraft Fees. ...
- Stopping Payments. ...
- Running Up a Credit Card Balance.
The main difference between auto pay vs bill pay is that, with bill pay, you are the one initiating the payment, while with auto pay, the vendor initiates the charge to your credit or debit card. Another difference is that, with auto pay, you are authorizing the vendor to charge your card on a recurring basis.What kind of bills should not go on autopay from your bank? ›
Don't use automatic payments for bills where the total fluctuates each time: think utility bills and cable bills that could end up being a different total each month. You should also avoid paying certain bills with cash—including utility bills.