What Is an Automatic Bill Payment?
An automatic bill payment is a money transfer scheduled on a predetermined date to pay a recurring bill. Automatic bill payments are routine payments made from a banking, brokerage, or mutual fund account to vendors.
Automatic payments are usually set up with the company receiving the payment, though it’s also possible to schedule automatic payments through a checking account’s online bill pay service. Automatic bill payments occur over an electronic payment system, such as the Automated Clearing House (ACH).
Key Takeaways
- 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.
- Advantages of automatic bill payments include the ease of automated payment, the ability to avoid late payments, and the potential to maintain or improve your credit score.
- Disadvantages of automatic bill payments include the difficulty in canceling them, the need to keep adequate funds in your checking account, and the potential of incurring a returned payment or late fee.
How an Automatic Bill Payment Works
Automatic bill payments can be scheduled for all types of payment transactions. This can include installment loans, auto loans, mortgage loans, credit card bills, electric bills, cable bills, and more. These payments can be automated quite easily from a checking account.
Setting up automatic bill payment involves making arrangements with the bank holding the checking account to make the exact payment each month. The set of instructions is typically created online by the account holder. More frequently, this power is given to the vendor (the utility company, for example) to charge the checking account for whatever amount is owed that particular month. In both cases, the individual paying the bill must initiate the automatic bill payment and provide the necessary information required to make automated recurring payments.
Pros
Payments are easy to automate from a checking account.
Organizing automatic bill payments helps you avoid late payments.
Paying automatically (and always on time) helps you improve or maintain a good credit score.
Once payments are set up, you don’t have to keep doing the task each month.
Cons
If you don't keep a cushion in your checking account, an automatic payment could bounce.
You may incur a returned payment fee or late fee.
You could miss catching mistakes or fraud because the payment is automatic.
Automatic payments can be difficult to cancel.
Example of an Automatic Bill Payment
Automatic payments save consumers the hassle of having to remember to make a payment month after month. They can also help consumers avoid late payments.
For example, suppose you have a $300 car payment due on the 10th of every month for the next 60 months. Instead of logging into your online account with the auto loan company to schedule the same payment each month, you could set up automatic payments one time and agree to have $300 automatically transferred from your checking account to the auto loan company on the fifth day of each month. This way, you know your payment will never be late, and you’ll avoid the trouble of doing the same task each month. You'll also improve—or maintain—a good credit score.
Disadvantages of Automatic Bill Payments
Automatic payments have a couple of potential downsides. If you forget about your scheduled automatic payments and do not maintain a cushion in your checking account, an automatic payment could bounce. Not only will your bill remain unpaid but you might also incur a returned payment fee from the company you were trying to pay, as well as a late fee for missing the due date. And automatic payments aren’t infallible. You still need to check regularly to make sure your scheduled payments have gone through as expected.
Another problem can occur when you authorize automatic payments that vary in amount. For example, suppose you set up automatic payments of your credit card bill from your checking account. If you don’t look at your credit card bill when it arrives, you might have an ugly surprise when it’s automatically paid in a much higher amount than you expected because of a mistake or fraud—or because you simply didn’t realize how much you had spent.
Automatic payments can also be difficult to cancel. Additionally, consumers might forget about certain automatic payments and continue to pay for services that they no longer want.
FAQs
Individuals can set up an automatic bill payment through their online checking account, brokerage, or mutual fund to pay their monthly bills. Advantages of automatic bill payments include the ease of automated payment, the ability to avoid late payments, and the potential to maintain or improve your credit score.
What are the pros and cons of auto pay? ›
Let's take a look at the 4 pros and cons of automatic payments for businesses.
- Pro: Automatic Payments Save Time. ...
- Pro: Can Improve Cash Flow. ...
- Pro: Better Customer Experience. ...
- Pro: No Late Payments. ...
- Con: Autopayments Can Be Inflexible. ...
- Con: Less Engagement with Customers. ...
- Con: Can Be Difficult to Set Up.
An automatic bill payment is when you set up a recurring transfer from one of your accounts, such as a checking account, to pay a bill, such as a loan or subscription. When you enroll in automatic payments, you allow a company to withdraw money from your bank or credit card to pay your bill.
What are some advantages and disadvantages of using automatic withdrawal to pay bills? ›
The Pros and Cons of Autopay
- 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.
They don't have to worry about forgetting to pay on a certain day or date or resulting late fees and reminders to pay. They can plan ahead to make sure there's money in the bank for this coming cost. They don't need to take effort to go write a check, drop off money in person or conduct an online transaction.
Why is automatic payment a good or bad idea? ›
If you regularly have a healthy balance in your checking, autopay can be a convenient way to make sure you're always on time. If, however, you struggle to monitor your balance, it's better to set up a reminder in your calendar and make a manual ACH transfer.
What are the pros and cons of mobile payments? ›
Mobile payments can be convenient, fast and secure. They can, however, be expensive and still vulnerable to issues with technology. In particular, if there are any issues with the host phone, mobile payments will be unable to work at all.
How does bill payment work? ›
An online bill pay service works by deducting a payment from your account balance and transferring it to a service provider. A bill pay service may be included as part of a checking account's features.
What is an example of an automatic bill payment? ›
An automatic payment arrangement is often used to pay bills—for example, a monthly credit card bill. Automatic payments are also frequently used for paying utility bills, mortgage payments, and more.
What are two ways to automate bill paying? ›
You can automate bill payments in two ways:
- 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 BILLS SHOULD YOU NEVER HAVE ON AUTO-PAY? While auto-pay is a great way to save time and avoid late fees and penalties, it doesn't necessarily work for every expense. ...
- Utility Bills. Likely, your utility bills such as heat and water will fluctuate every month. ...
- Free Trials. ...
- Credit Cards. ...
- Cell Phone Bill.
If you're still paying bills one by one, switching to automatic payments can streamline your personal finances while saving you money. Just be aware that some companies allow autopay discounts when paid from a bank account, debit card or credit card, but not for credit card payments.
Should I put my credit card on autopay? ›
“If you have plenty of cash flow, then I would recommend having the autopay set for the full balance each month so you don't have to worry about remembering to log in and pay it,” suggests Shon Anderson, a certified financial planner and president at Anderson Financial Strategies.
Is autopay more expensive? ›
But what I found in my reporting is that people who use autopay tend to pay a smaller percentage of their bills overall, compared to when they would make manual payments. So in a situation with a credit card, if you're paying less of that balance, that means you're potentially paying more in interest.
How much does autopay pay? ›
The average AUTOPAY salary ranges from approximately $40,000 per year for Call Center Manager to $159,301 per year for Senior Product Manager. Average AUTOPAY hourly pay ranges from approximately $15.97 per hour for Automotive Service Manager to $26.46 per hour for Compliance Officer.
What are the disadvantages of automatic payment? ›
Disadvantages of automatic bill payments include the difficulty in canceling them, the need to keep adequate funds in your checking account, and the potential of incurring a returned payment or late fee.
Does autopay charge a fee? ›
While some lenders might charge an origination fee — which is an upfront cost — a few offer a rate discount if applicants set up autopay for monthly payments. And when it comes to your loan, Autopay's lenders do not charge a prepayment penalty. So you can pay off your loan early without extra fees.
Is it safe to set up autopay? ›
In general, using autopay is considered safe. Follow our guidelines: Explore your autopay options. Choices include whether you can use a credit card or just a bank account, and whether you still wish to receive an online invoice or paper bill in the mail.
What are the disadvantages of auto debit? ›
Finally, when making your decision, consider your risk tolerance. Auto debit payment processing carries some risks, such as the possibility of unauthorised charges or insufficient funds. Manual payment processing, on the other hand, may take more time and effort.
