Advantages and Disadvantages of Automatic Bill Payment

One of the ways online banking has been proven to be more efficient is through the advent of automatic bill pay. You can set up automatic payment plans for multiple uses such as utility, entertainment, household, and other bills. Nowadays, almost any vendor you purchase goods or services from now offers automatic payment plans.

With an automatic payment plan, the monthly bill is recurrently charged to your credit card or debited from your checking account on a pre-set date every month without you having to do a thing.

It makes life easier knowing that bills are paid on time and in full each month. But while there are definite advantages to signing up for automatic payment plans, there are drawbacks as well. In this guide we will explore the advantages and disadvantages of automatic bill payments.

What is an Automatic 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.

You can set up an automatic bill payment as a “push,” meaning you originate a payment from your bank or other financial institution to a service provider. It can also work as a “pull,” where you authorize a vendor to draw from your financial account for an agreed amount when a bill comes due.

Automatic payments can usually be set for whatever cadence a bill is due — weekly, monthly, quarterly or even annually — though it may be risky to set automatic bill payments too far in the future.

Advantages of Automatic Payment

• Convenience: Instead of visiting several different websites or fielding mailed invoices at various times during the month, you can automate the bill-paying process. If you do this through your bank, your bills can be organized and viewed in one place. And some companies will email to let you know they are about to take a payment. In a sense, instead of you going to them, they come to you.
• Improve Credit Score: Your payment history is the single biggest component of your credit score, and FICO reports that negative marks on your credit history can fade over time when you are consistent with payments. With automatic bill pay, you can keep on time and avoid delinquency.
• Secure: Data breaches make headlines, but online banking is no less secure than leaving a check in an envelope in an unguarded mailbox. In fact, your accounts may be better protected through the encryption techniques that banks use online to secure customers’ information.
• Less Chance of Identity Theft: If your bills are not mailed to your home and you are not mailing in paper payments with credit card or checking account numbers, you reduce your risk of identity theft. Sure there are risks when paying online as well, but the security is typically greater than a mailbox.

Disadvantages of Automatic Payment

• Potential Cost: Some companies will charge you a fee because automatic payments actually save them money. If you encounter this situation, make them process a paper check instead.
• Overdraft Fees: Some payments fluctuate in amount, and if you’re not careful, your account may be overdrawn. Overdraft fees vary by institution, but the median is $34. Keep tabs on your bank account and have enough in there to cover all your automatic payments.
• Late Fees: Even though it’s called “automatic,” a payment still takes time to process and reach a merchant or service provider. Confirm how long it takes for payments to arrive so you can set payment dates accordingly and avoid late charges.
• Costly Mistakes: What if your phone company accidentally withdraws your monthly payment twice? Or your cable provider adds a zero to your balance and takes out $850 instead of $85? Such mistakes, while rare, can happen, and redressing them takes time and effort. Automatic payments can also be difficult to cancel.

Conclusion

In conclusion, I believe the convenience of having all my bills automatically paid definitely outweigh the risks. It will save you time and money while rewarding you for doing so. But you do need a certain amount of discipline to avoid trouble with automatic bill pay. For example, it’s not a good idea to just “set it and forget it.” If mistakes occur, you could be held accountable. Plus, good financial habits are rooted in an awareness of what you’re paying and when.

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