Automatic Bill Payment

Automatic Bill Payment Definition

An automatic bill payment is sometimes referred to as an automatic debit. It is an arrangement with a creditor to periodically withdraw money from your checking or savings account to pay a bill for goods and services. In some cases, credit cards can also be used. Automatic payment is normally for regular monthly payments.

Detailed Information About Automatic Bill Payments

An automated bill payment (also known as autopay or an ACH payment) is a money transfer scheduled on a predetermined date to pay a recurring bill.

With Autopay, you directly authorize a financial institution to pay the vendor. Effectively, you're pre-authorizing an automatic bill payment for services or products using a credit card, checking or savings account, or money market account.

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Autopay typically happens through an electronic system known as ACH. ACH stands for Automated Clearing House. This allows you to electronically send funds from one bank account to another.

Autopay is used for a variety of bills, including:

  • Mortgage
  • Utility bills
  • Subscriptions
  • Student loans
  • Cell phone bills
  • Credit card bills
  • Installment loans
  • Insurance payments

How To Set up Automatic Bill Payments

There are a few ways to set up automatic bill payments, including:

Set Up Through Your Vendor

For this method, go to the company, vendor, or creditor’s website you’re trying to pay for. From here you can log on and set up an automatic payment.

All you have to do is enter your checking or savings account information, choose a date for the payment, and enter the amount to be paid each month. Usually, you can also choose to deduct the payment on or a few days before the due date.

Set Up Through Your Bank

Another way to stay on top of your bills is by setting up an automatic payment through your bank.

For example, suppose you have a checking account with Bank of America. Go to Bank of America’s website and log in using your online banking details. Once successfully logged, go to the bills payment section. Then, you’ll have the creditor’s information, such as account number, creditor’s name, and so on.

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Take note that some banks keep several vendors’ electronic payment information. If they do, funds are transferred through Automated Clearing House (ACH). Your bills are paid electronically and will take one to two business days to arrive. For vendors that do not have the electronic payment information on banks’ files, a check will be automatically generated, printed, and sent to the creditor company.

Using Your Credit Card

The last option would be to use your credit card when the payment website accepts it. Generally, service providers like banks and phone companies accept credit card payments.

Say you are paying your house’s mortgage with AmeriSave. You would log on to your account on the company’s webpage, and set up an automatic payment. On their payment section, you can enter your credit card information and the payment date.

In some instances, several merchants will have additional charges when auto paying with a credit card. You can check on that before you decide on using this method.

What Are the Benefits of Auto Paying Your Bills?

Automatic bill payments can make your life easier by eliminating the hassle of remembering to pay your bills. Before signing up, here are the full benefits for you to consider:

Hassle-free: Automated bill paying is an easy way for you to stay on top of your business finances, whether through your bank or online services. You will save time and prevent the hassle of visiting several different websites or payment centers at various times in the month.

Boost credit rating: Paying bills on time does more than just demonstrate financial responsibility. It also helps protect you from further blemishes to your credit history that can result in higher interest rates or denial of a loan altogether. Automatic bill payment makes it easy to pay bills on time, even if your schedule gets hectic or finances get tight.

It’s protected: Automated payments are not only easy and convenient for customers, but online banking is also extremely secure. Most financial institutions and companies use encrypted technology in banking and implement the best security protocols to protect their customers' information.

Eco-friendly: If you care for the environment then you should consider automated payments. This will encourage paperless billings or receipts, which would help reduce paper waste.

What Are the Disadvantages of Auto Paying Your Bills?

Despite its convenience, automatic bill payment has its drawbacks. You may consider one of these before you jump into such a payment arrangement.

You may incur overdraft fees: Scheduled automatic payments may be convenient, but remember to keep enough cash balance in your account for any unforeseen or automatic payments otherwise, it may result in returned payment fees.

Possible late fees: Until the payment reaches a merchant or service provider, it hasn’t been paid. Indeed, the payment was automatically deducted but the processing time is a bit longer. To avoid any late charges, it’s essential to confirm payment processing times before scheduling payments.

It is not easy to cancel: One disadvantage of autopay is that it can be difficult to cancel an enrolled service. Even if you don’t use the service anymore, the payment is continuous until you cancel it. Sometimes, you need to call your bank or go to their office personally for cancellation.

Example of Automatic Bill Payment

Assume you purchase a car for $25,000 and the monthly car payment is $500 per month. Instead of logging into your auto loan provider's website each month to pay $500, you instead log on a single time and enter your bank details into the auto loan website's automatic bill pay section. When you do that, the auto loan company automatically withdraws $500 per month from your checking account on file and this occurs until your auto loan is paid off.

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