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Automated Bill Payments Guide: How Does it Work? Is it Right for Your Business?

March 15, 2021
Finance leader working from home

The list of problems that can be addressed with automated bill payments is extensive.

You may be tired of writing paper checks every month to vendors.

Or you may find it’s getting repetitive and time-consuming to keep track of which vendor you owe money to on the first day of the month, 15th of the month or the end of the month?

And remembering how much to pay each vendor – all sorts of different amounts – has become more detail than you would rather keep track of.

Or maybe you’re just in the mood for change.

This is where automated bill payments can help.

In this blog we’ll describe what these are, how you can use them, when they’re most useful (and not as useful) and whether they’re safe.

What is bill payment automation?

Bill payment automation occurs when a finance pro sets up special arrangements with your bank for recurring electronic financial transfers. You instruct your bank, for example, to automatically pay your bills to your vendors on a pre-determined recurring date, usually each month, for a specific amount.

For example, if your business rents an office building from Company X and the month rental fees is $1,000, you could instruct your bank to pay Company X that amount out of your checking account on the last day of every month.

Or in another scenario, Company X automatically contacts your bank on the last day of each month requesting the $1,000 payment. You would authorize Company X and your bank to complete this transaction.

Or, you could set up a process with your bank to send a freelance consultant, whose services your business uses every month, a payment of $1,000 on the first day of each month.

“Set it and forget it” systems

You can think of all these as “set it and forget it” systems. You set up the arrangements then forget about the problem of paying your bills.

Payments are sent automatically without writing paper checks month after month or getting involved in executing the online transactions.

There’s another way bill payment automation can occur called Automated Clearing House (ACH). When your company automatically deposits paychecks into employees’ bank accounts, that’s usually an ACH transaction. It’s a bank account-to-bank account funds transfer.

You can also use bill payment automation to pay corporate bills such as utility, cell phone, credit card and auto loans.

How do you automate bill payments?

You automate bill payments by setting up arrangements with your bank.

For example, you may ask your bank to pay Employee X $1,000 on the 15th and last day of every month out of your checking account using the ACH method. The bank then transfers those funds from your account to the employee’s account on those dates.

Use of credit card to make automated bill payments

You could also use your corporate credit card to automate bill payments. If your company has a $100/month subscription to a business news TV station for employees, you could set up an automatic payment. Each month $100 will be withdrawn from your credit card account and paid to the business news company.

You could also choose to pay the subscription bill directly to that company. You would give the company your bank account information including the routing and account numbers. This way the business, your vendor, could withdraw the funds automatically on the due date each month.

You can set up these arrangements by calling your bank, visiting a teller in person, or doing it online.

Once you set up this plan, the online payment solutions will be made automatically without the need for you to intervene.

A word of caution: You want to make sure the automatic payments are being made on time and for the correct amounts. Check on this regularly on your online or paper bank statements.

Here are five reasons why automated bill payments are a good idea:

  1. They help take the paper processes off your plate. Once you set up the automated process, you no longer have to sit down and write checks. It saves you time and helps eliminate this labor-intensive and error-prone process from your life.
  2. Automating bill payments allows you to worry less about when and how much you need to pay your vendors. You get to focus on other parts of growing your business such as providing financial analysis and business advisory services.
  3. You won’t miss payments. Automated payments make sure your bills get paid on time.
  4. You improve your credit score because you pay on time. That puts you in good standing as a business and maintains a good reputation with customers.
  5. You consolidate all your bills and payment information into one account. This information is no longer scattered on pieces of paper around your office. This makes it easier to check the status of payments quickly.

Be careful of “out of sight out of mind” situation

You should be aware there may be some circumstances in which you may want to be careful about using automated bill payments.

One prime example is the concept of “out of sight, out of mind.”

“If you stop being hands-on with your payments you may forget precisely what you’re being billed for. It’s easy enough to do,” Gocardless.com notes. “So if you have a habit of changing your services and memberships on a regular basis, automatic payment may just end up being overly complicated.”

The report describes a scenario in which you notice an attractive deal on a new gym membership. You sign up immediately and tell yourself to cancel your current gym membership, which is on an automatic bill paying schedule.

But you never get around to canceling it. You keeping paying for the membership you no longer want.

Are automated bill payments safe?

Automated bill payments are, in the vast majority of cases, safe. Much safer than using paper checks and paper invoices. Fraudsters are skilled at stealing sensitive information off of paper checks and invoices. They use those skills to steal money and information from companies.

This is far less likely using online payment solutions. Unlike paper checks, electronic payments such as ACH get routed digitally from one bank account to another through payment systems.

Most use automated fraud monitoring tools such as Positive Pay to flag suspicious activity and avoid duplicate payments and invoices. Using accounts payable (AP) automation software, payments are controlled from start to finish, and risk is mitigated.  

What software automates bill payments?

There are many different types of software that automate bill payments. They tend to have this in common:  customized capabilities for accelerating and simplifying bill payments.

But the highest performing software contains smart rules and conditions that specify how bill payments are supposed to be made.

For instance, the software may have a condition that requires the CEO has to approve any invoice over $1,000. The software automatically identifies invoices of $1,000 or more and routes them directly to the CEO.

The best software for automating bill payments should eliminate manual effort and reduce payment processing costs. It should also improve accuracy, efficiency and control over the complete bill payment process. 

How will automated bill payments help my business?

Here are three ways automated bill payments will help your business:

  1. You’ll pay your bills on time so your vendors will be pleased and eager to continue doing business with you. They won’t have to call you asking why your payment is late, which strains the relationship.
  2. You’ll have more time to spend focusing on adding more strategic value to your business through financial analysis and business advisory services, rather than spending time writing dozens of paper checks every month. That’s not adding value; it’s eating up time.
  3. You’ll avoid any penalties or late fees caused by late payments. The automated system will ensure your bills get sent to vendors on the day you specify every time without missing a deadline.

When does it make sense to automate bill payments?

It makes sense to automate bill payments when you feel the process is taking up too much of your time that could be spent on more value-added projects.

There’s no exact number for this, but a good rule of thumb is that if you spend more than 10 percent of your work week paying bills, you probably want to automate your bill payments.

It will save time so you could spend it on more valuable and intriguing work that helps grow your business.

Consider this matter in the context of invoices. If you’re processing fewer than 100 invoices per month, you might not feel enough pain to look into AP automation software. But once you exceed that amount or find you’re having issues keeping up with processing in terms of monthly transaction volume, that’s when companies typically start experiencing the many pains of manual AP.

Industry-leading AP automation research studies found you can save approximately $10 every time you process an invoice and payment using AP software rather than a manual system. If you process 500 invoices, you could save $5,000. If you process 1,000 invoices, you could save $10,000 (based on time and supply savings).   

Tips for automating bill payments

Here are five tips for automating bill payments:

  • Set up a bill payment calendar online that shows you every bill your company owes. Name the vendors, due dates and amounts. On this calendar, specific if any of the bills need to be paid by checks instead of electronically.
  • Create alerts so your bank notifies you when you balance approaches zero. These alerts will help prevent you, for instance, from paying a vendor $1,000 when you only have $900 in your account. You don’t want that. Why? Because your bank will pay the bill but charge you for the overdraft, perhaps an additional $25 you don’t need to be spending.
  • When you’re issued a new credit card or debit card, be sure to update this information with your bank. You don’t want them making credit card payments out of the account with the outdated account number. That will lead to delays in payments and strained relationships with your vendors.
  • Create notifications with you bank that inform you when a payment gets charged to your credit card. You’ll want to know this right away so you don’t overspend on that credit card. If you overspend, you’ll raise the balance too high at high interest rates that you’ll have to pay. It’s a downward spiral you want to avoid.
  • Log in to your online automated bill payment system with your bank at least once a week. Check your balance. Make sure all the payments are correct. Look for any suspicious activity such as bills paid by you for extraordinarily large amounts that don’t make sense. And do the same for your credit cards.

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