A single missing payment on your credit card bill could mean a drop in your credit score. If you fail to make a payment on your home’s electric bill, you may end up paying a pricy late fee. How can you avoid these mistakes? Use autopay to put your bill payments on easy mode.
If you’re not using automatic bill payment services yet, now is the time to start. It often takes just a few minutes to set them up, and you can easily adjust the process over time if you need to make changes. Most importantly, autopay is one of the easiest ways to ensure your bills are paid on time each month.
What is automatic bill pay?
Automatic bill pay is a service offered by most credit unions, banks and credit card companies to help you easily and efficiently pay your bills. It’s a type of money transfer you arrange in advance.
Normally, when you pay a bill, you go to the vendor’s website, navigate to where you can make a payment and enter your payment information so that the company can process the payment. With automatic bill pay, you go through a similar process through your financial institution and set up recurring payments that process every month on the same date, so your bills are always paid on time.
You’ll set the predetermined date for the payment. When that date arrives, your financial institution transfers the amount you’ve selected from your account to the payee you’ve designated. This can be done for many types of accounts, including utilities, mortgages and even financial investment services. The money is transferred when you want it to be.
You probably already use autopay for certain transactions. For example, most subscription services, such as Hulu or Amazon Prime, use autopay. You don’t typically sign in to your account and make a payment for these services each month. Instead, the monthly fee is automatically deducted from your bank account on a certain date.
Automatic bill payments work the same way. You simply set up the payment, and the autopay service does all the work for you.
How does autopay work?
When you use autopay services through your checking account, the process is very simple to set up. It’s usually done fully online with some basic support tools available to help you. Here’s what you can expect to happen:
First, you may need to provide the autopay service with the name and address of the company you want to pay, or the payee. You just need to fill in the contact information your financial institution asks for. Many financial institutions have systems that automatically recognize and populate information for common service providers. That can speed up the input process if it’s available for your payee.
If your service provider has given you an account or customer number that it associates you with, you may need to provide this as well when setting up autopay. For example, if you’re paying a phone bill, you’ll provide the name of the company you’re paying, its contact information and your account number in the system.
Next, you’ll choose the amount you want to pay each month. For payments that are always the same, this is easy to do. During set up, enter that amount, and that’s what the bill payment service will send each month.
When payments differ month to month, your options may vary depending on your financial institution. You can usually set up autopay to transfer the minimum amount due each month. If this isn’t an option, you may need to manually enter in the amount due each month after you’ve received your statement. Check with your financial institution and be sure you understand how its autopay services handle these types of bills.
When the time comes for a payment to go out — based on the date you selected — an electronic transfer occurs. This is called an automated clearing house (ACH) transaction. You don’t have to do anything for it to occur except set up the parameters in advance through the bill payment service.
Once the payment transfers to the company you’re paying, it will be accepted by that organization and credited to your account. Most of the time, it’s much faster than mailing a payment.
Be sure to learn the ins and outs of your bill payment service. Some allow you to set up additional payments. They may also allow you to set up payments over and above the minimum amount due. That may help you pay down debt faster.
Also be sure you understand the processing times for both your autopay service and your payees so that you don’t accidentally schedule your payments to arrive late. For example, if your autopay service has a processing time of 24 hours to send an electronic payment and your payee has a processing time of 24 hours to receive an electronic payment, then you’ll need to schedule your payment to go out at least two days before its due date to ensure it arrives on time.
Benefits of using automatic bill pay
Paying your bills can take a lot of time and energy every month. And what happens if you forget a bill? You could set up reminders on your phone, but you still risk missing a payment. Automatic bill pay eliminates that risk and offers many additional benefits as well.
One of the main reasons to use autopay services is because they’re very easy to use from your home laptop or even your smartphone — just make sure you have ample security in place when logging in to your accounts. With automatic bill pay, you don’t have to sign in to each of the service providers you need to pay each month to set up a payment.
In addition, you don’t have to remember to make payments several times a month. If you make numerous payments to various companies, autopay services can manage that need. You set up the process once so that you don’t have to worry about it month to month.
You can stop automatic payments with ease as well. It only takes a few minutes to alter payments. Just make sure you know how much lead time your financial institution requires to make those adjustments. You can’t typically stop an automatic payment a day or two before it’s due.
You'll gain peace of mind.
When you send payments through ACH, you can rest assured each transaction is secure. You don’t have to worry about it getting lost in the mail or other people getting access to your account information. Encryption methods help make accessing your account and entering your information into the system very safe.
You won't have late fees.
If you’ve ever forgotten to pay a bill, you’ve likely been hit with a late fee. Some organizations charge significant fees for late payments, and those costs can add up quickly. With autopay, your bills are always paid on time. Late fees are no longer an issue, and that means you have more money to spend on things you enjoy or to save for the future.
Your credit score may improve.
Most credit card companies, mortgage lenders and personal loan holders report to credit bureaus regarding on-time, late and missing payments. Some insurance companies and utilities do as well. If you’re making payments to these types of companies, bill payment services may help improve your credit score, as your bill payment history makes up a large percentage of your credit score.
When you use an autopay service, the payment is sent automatically on the date you set or before your bill’s due date. That means you don’t have to remember to send it — and that often translates to fewer instances of missing payments, which can give your credit score a boost.
How to avoid mistakes with automatic bill pay
If you’re planning to make automatic payments, you may have several options. Typically, it’s best to turn to the financial institution you use for banking to manage the process. That keeps all of your finances located in one place.
If you choose a different provider for your bill payment service, be sure you know the terms and restrictions. Some have setup fees for using services like this. Others may not give you the flexibility you need to set up payments on a monthly basis.
In addition, here are some other things to watch out for:
Set it up but don't forget it.
A big mistake that’s easy to make is setting up the bill payment service and then forgetting to fund your account. If you don’t have money in the account to cover the bill, the autopay service may not process your transaction, or you may get hit with an overdraft fee. If your payment doesn’t go through, that means the payment will be late.
Determine if your autopay service lets you set up a balance transfer solution. If so, then if you don’t have funds for the transaction in your account, the financial institution can, for instance, transfer the funds from your savings account into your checking account to cover the transaction.
Schedule payments for all your accounts.
When using autopay services, make sure you use it for as many of your accounts as possible. That can help minimize the risk of forgetting accounts down the road. For example, if you use autopay for all of your credit cards and utilities, that’s great. But if you forget to set up your mortgage or rental payment this way, you’ll have to remember to make that payment on your own each month. Setting them all up helps minimize the risk that you’ll miss a payment.
Know the costs and access.
Not all credit unions and financial institutions offer autopay services. And some don’t offer it for free. There may be minimal costs to consider. Take a few minutes to find out what your financial institution offers and if a fee is involved.
Read the terms and disclosures.
It’s your responsibility to know the rules when you sign up for automatic bill payments. Specifically, find out how long it takes for payments to be processed. You’ll want to make sure you set up your account far enough in advance to ensure funds transfer in time before your bill due date.
It’s also important to know what happens if you don’t have enough funds in your account to make an automatic payment. In some situations, that could lead to additional fees, including insufficient funds fees. Know the rules before you use autopay services.
Tips for using automatic bill pay
The more you know about autopay services, the better off you’ll be. To help ensure success, it’s important to follow some best practices:
Set up early payments.
Don’t ever set a payment to process the day a bill is due because sometimes mistakes happen. To avoid that and ensure your bills are always paid on time every month, set up your payments so that they process a few days early.
For example, if you have a payment due on the 15th of the month, make sure the bill payment service is transferring those funds by the 13th. That way, there’s enough time for the transaction to go through.
Review account statements.
Regardless of how you pay your bills, you’re the one responsible for managing your accounts. That includes knowing which bills are coming due in your automatic bill pay service and which are being paid.
From time to time, there may be changes in your accounts or the costs of your bills. You’ll need to track what’s changing on a routine basis. One easy way to do that is to review your account statements each month.
Check your statements and invoices from each payee to make sure everything is correct. Then look at your monthly checking account and credit card statements to ensure the payment information matches the amount on your bills. Finally, look for duplicate charges to make sure you weren’t accidentally overcharged. It’s also important to review your statements for potential fraud so that any problems can be identified and reported as quickly as possible.
Be aware some companies don't accept ACH.
What happens if you need to make a payment to a company that doesn’t allow for ACH transactions? You can still use autopay in most situations, but the automatic bill payment service will handle the transaction a bit differently. It will process the payment as you set it up, but instead of transferring the money electronically, the service will typically print and mail a check to the payee for you.
That can slow down the process a bit, so plan accordingly. Although this may seem like an inconvenience, having your autopay service handle this transaction still allows you to consolidate all of your bills in one place.
When should you not use autopay services?
Although autopay is a great feature with many benefits, it’s not the ideal solution for every bill or every person. If you fall into any of these three categories, carefully consider using automatic payments before making a final decision:
1. You like to have control.
Some people don’t love the idea of giving someone else control of their payments. Although making payments is sometimes a hassle, these people prefer to set things up themselves. If you’re one of these people, automatic payments may add more stress to your life.
2. You’re self-employed.
If you’re self-employed, you may have irregular income. Automatic payments work great for regular paychecks, but self-employed people rarely have that luxury. If your income is sporadic, it might be best to stick with manual payments. Otherwise, you may face overdraft fees if you don’t have enough money in your account to cover a scheduled payment.
3. You’re unemployed.
If you’re unemployed, you’re likely facing cash flow issues. In this situation, you need as much control over your finances as possible. You may face the unfortunate situation of choosing which bills to pay and which to let slide until you have more cash. Automatic payments will only add to the problem. It’s best to hold off until you have a new job with steady income.
Most budgeting experts believe automatic payments are the best way to manage your bills each month. It’s easy to set up and just as easy to cancel later if you no longer need it. Using an automatic bill payment service can help you reduce stress, streamline budgeting and simplify your life.