Bill Pay: Should You Love it or Leave it?

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Updated on Monday, June 20, 2016

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Credit cards, debit cards and money tracking apps make financial automation easy and safe for most people, but not for everyone. If you write checks on a regular basis, then you know how difficult it is to automate finances when you depend on a payee to deposit your check.

However, a checking account feature called Bill Pay (offered by most national and online banks) makes it possible to automate check writing. With this feature, you can automate your finances, manage your cash flow, track your spending and keep your account information secure.

The Bill Pay feature makes automation possible, but it has significant drawbacks. Notably, Bill Pay requires you to carry a hefty cash buffer in your checking account to eliminate the possibility of missed checks or overdraft fees.

When it comes to Bill Pay, will you love it or leave it?

What is Bill Pay?

Bill Pay is a checking account feature that allows you to pay individuals or businesses with a check, but without the hassle and expense of writing and mailing a check. Using Bill Pay, you render checks from your accounts on an automated or an ad-hoc schedule. You can automatically pay variable bills such as utilities or credit card bills using Bill Pay.

When you use Bill Pay, banks issue and mail physical checks, but the checks do not carry personal or account information on them. If the check has not been deposited, then you can cancel the transaction and void the check. Bill Pay is a free feature for most checking accounts.

Reasons to Consider Bill Pay

Eliminate check writing

Many small businesses such as landlords, daycare providers, homeowners’ associations, and utility companies do not have the means to accept electronic payments. Writing checks each month may start to feel like a waste of time and just another thing on your already long to-do list, but Bill Pay allows account holders to eliminate this waste. When you set up a payment schedule, the bank automatically issues a check with the appropriate amount to the proper payee.

Manage cash flow

Rather than relying on payees to deposit checks in a timely manner, as a Bill Pay user, you can count on transactions withdrawing money from your account within 24 hours. Setting up automatic payments via Bill Pay guarantees that you will avoid missed payments and late fees with your payee. In fact, most banks offer a payment guarantee that promises to refund any late fees or finance charges that Bill Pay customers incur if the Bank fails to issue a check on the correct day.

The automatic nature of Bill Pay, makes it easy for you when you have a reasonable account buffer to manage your cashflow, but keeping your account balance close to zero means you may find yourself paying overdraft fees and returned item fees (if you have “overdraft protection”), or the bank won’t issue the check due to insufficient funds. Better cash flow management benefits those who have the cash available when it is needed.

Cancel transactions

If an account holder issues a check in error via Bill Pay, or if the payee loses the check, you can cancel the transaction by calling your bank and requesting a Bill Pay Cancellation. The check becomes void one business day after you cancel the transaction, and the funds are redeposited within 3 days. Cancelling transactions is free.

Reduce Identity Theft Risk

Checks issued via Bill Pay contain encrypted personal and account information. Encrypted information means that neither check recipients nor check thieves can use the check to hack into a checking account. Bill Pay users can reduce the number of businesses that have personal and financial on file which reduces the risk of identity fraud in the event of a digital security breach.

Easy Automation

Whether you want to pay the same amount every week or month, or a variable amount, Bill Pay makes it easy for you to automate your finances. As long as you have sufficient funds, the bank will take care of writing and sending the checks.

Track Spending

Bill Pay makes it easy for you to track your spending because Bill Pay transactions behave like normal debit card transactions which means transactions are easy to track and categorize for those who want to use an app like LevelMoney or Mint.

Drawbacks to Bill Pay

Checks delivered via Snail Mail

Banks that offer Bill Pay lead customers to believe that checks will be delivered 3-5 business days after they debit the transaction from the account, but delivery time depends on the speed of the United States Postal Service. In practice, Bill Pay check delivery takes 3-8 business days. In particular, checks issued to individuals tend to take longer than checks issued to businesses.

The delay between the date the bank withdraws the money and the delivery date poses a problem for you if you cannot afford to pay your bills up to eight business days in advance.

No International Transactions 

Bill Pay transactions cannot cross international borders. Automating international financial transactions requires the ability to pay electronically rather than using a check issued via Bill Pay.

Requires Significant Cash Buffer

Bill Pay requires sufficient funds to issue checks, and checks require 12 days to reach their final destination on time. As a result, you’d need a significant cash buffer in your checking account. In general, Bill Pay users will want at least one full paycheck as a buffer in a checking account, but you may want a full month’s worth of expenses in your checking account as a buffer.

Anyone who tries to use Bill Pay without a proper cash buffer may run into one of three issues. First, the bank will not issue all checks due to insufficient funds which may result in late penalties unless you find a way to pay. Second, users with overdraft protection will have to pay overdraft fees if Bill Pay gets triggered without sufficient funds in the checking account. Third, users may find themselves too low on funds to pay for groceries or other necessary items until they receive their next paycheck.

Returned checks take two weeks 

If a check fails to reach its intended destination, you will not find out for at least two weeks. Returned checks are typically the result of an account holder incorrectly typing an address when they set up a Bill Pay Payee. When a check fails to reach its final destination, the postal service returns the check to the bank, who processes the transaction, and refunds the money to you the account holder.

A returned check does not trigger an alert informing users that the check did not reach its final destination, so it’s up to account holders to notice the returned item and to fix the problem going forward.

Who should embrace Bill Pay?

Anyone who wants to save money on check writing and postage can consider using the ad-hoc Bill Pay feature, but people who want to automate bill payment should tread carefully.

Before embracing Bill Pay automation it is important to have a few good habits in place. First, Bill Pay users should build up a large buffer in their checking account. Second, Bill Pay users should test the address and the lead time for new payees before automating payments. Finally, users should commit to review their Bill Pay transactions to be sure no payments persist in error. Once these habits are in place, Bill Pay eliminates the hassle of writing checks, and it allows users to save time and money.

Major Banks that offer Free Bill Pay

The details regarding Bill Pay vary from bank to bank. These are some of the largest US banks that offer free Bill Pay for checking account customers. Smaller banks and credit unions may offer free online Bill Pay too.

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