Definition of automatic payment of invoices
What is automatic bill payment?
An automatic bill payment is a transfer of money scheduled on a predetermined date to pay an recurring invoice. Automatic bill payments are routine payments made from a bank, brokerage, or mutual fund account to vendors.
Automatic payments are usually set up with the company receiving the payment, although it is also possible to schedule automatic payments through the online bill payment service of a checking account. Automatic bill payments are made through an electronic payment system, such as Automated Clearing House (ACH).
Key points to remember
- 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 automatic bill payment through their online checking account, brokerage or mutual fund to pay their monthly bills.
- The benefits of automatic bill payments include the ease of automated payment, the ability to avoid late payments, and the ability to maintain or improve your credit score.
- The disadvantages of automatic bill payments include the difficulty of canceling them, the need to keep sufficient funds in your checking account, and the possibility of incurring a returned payment or late fees.
How automatic bill payment works
Automatic bill payments can be scheduled for all types of payment transactions. This may include installment loans, auto loans, mortgages, credit card bills, utility bills, cable bills, etc. 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 usually created online by the account holder. More frequently, this power is given to the seller (the utility company, for example) to bill the checking account regardless of the amount owed that month. In either case, the person paying the invoice must initiate automatic invoice payment and provide the information necessary to make automated recurring payments.
Payments are easy to automate from a checking account.
By organizing automatic bill payment, you can avoid late payments.
Paying automatically (and always on time) helps you improve or maintain a good credit rating.
Once payments are set up, you don’t have to continue doing the task every month.
If you don’t keep a cushion in your checking account, an automatic payment might bounce back.
You may incur return payment fees or late fees.
You might miss any capture errors or fraud because the payment is automatic.
Automatic payments can be difficult to reverse.
Example of automatic invoice payment
Automatic payments prevent consumers from having to don’t forget to make a payment month after month. They can also help consumers avoid late payments.
For example, suppose you have a car payment of $ 300 due on the 10th of each month for the next 60 months. Instead of logging into your online account with the car loan company to schedule the same payment every month, you can set up automatic payments once and agree to have $ 300 automatically transferred from your checking account to the loan company. automobile on the fifth day of each. month. This way you know your payment will never be late and you will avoid the hassle of doing the same task every month. You will also improve – or maintain – a good credit rating.
Disadvantages of Automatic Bill Payments
Automatic payments have a few potential drawbacks. If you forget your scheduled automatic payments and don’t maintain a cushion in your checking account, an automatic payment could bounce back. Not only will your invoice remain unpaid, but you could also incur a returned payment fee of the company you were trying to pay, as well as a late charge for missing the deadline. And automatic payments aren’t foolproof. You should always check back regularly to make sure your scheduled payments went as planned.
Another problem can arise when you allow 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 watch your credit card bill when it happens, you might get a nasty surprise when it’s automatically paid a much higher amount than you expected due to an error or fraud – or because you simply didn’t not realize how much you spent.
Automatic payments can also be difficult to cancel. Additionally, consumers can forget about some automatic payments and continue to pay for services they no longer want.