DEFINITION:
Online bill pay is a type of digital banking or payment service that enables free or low-cost bill payment over the internet using a bank account. By doing away with the need to write checks or count and distribute paper money, it can make managing your finances easier.
Major Takeaways
- Many banks, credit unions, and service providers provide the practical service of online bill pay, which enables you to set up automatic electronic payments for your bills.
- You can schedule payments for immediate, upcoming, or automatic recurring transactions.
- In order to use this service, you must first register for an online account with your bank or service provider and enter your payment details.
- Always make sure you have enough funds in your account to cover any online payments you make.
Online bill payment definition and examples
You can set up electronic bill payments through a service called online bill pay. Usually, you can arrange for this service through your bank or directly with the service providers. You can set up online bill payment through your bank or service provider, for instance, to pay your electric, water, and gas bills as well as other bills.
How to Pay Bills Online
You must first open an online account with your bank or service provider in order to set up online bill payments, after which you must configure your account for payments.
Banks
In the bank model, you provide your financial institution with information about the people or businesses you owe money to, whether it’s another bank or a business, and the bank sends the money to them.
Within a few days after you schedule the bill payment, the bank will issue either an electronic payment or a paper check to the payee using money taken from your specified account. Many banks impose no limit on the number of bills you can pay through the feature.
Providers of services
This online bill payment system functions in the opposite direction of how banks do. You provide the bank account information to phone companies, mortgage lenders, utility companies, and other service providers so that they can make withdrawals from the account to pay for their services.
Using a bank to set up online bill payment
Schedule the payment amount you want to make, then finish the setup process. After that, all you have to do is enter the bill’s total each time you want to make a payment and schedule it.
Using a service provider to set up bill payment
You will frequently need to provide bank account information, such as your account number and any routing numbers associated with the checking account, either in the authorization form or separately, to allow the company in question permission to withdraw funds from your bank account in order to establish online bill payment with a service provider. You might be able to provide your debit card information in some circumstances rather than a checking account.
Prior to completing the bill pay setup, you will once more be prompted to enter the payment amount and schedule. A typical payment date is the business’s bill due date, but you should make sure that your payment will be recorded as timely. Once everything is operational, your service provider will be paid directly out of your bank account.
Tip
Verify each payee’s online payment requirements, whether they are a bank or service provider, individually for your own safety.
How to Select Online Bill Payment Formats
Your bank or service provider will typically give you the option to make one of a few practical types of payments through online bill pay once the payment system is set up.
- One-time payments: As the name implies, you only make this payment once. This choice makes sense for services you use infrequently, like a landscaper or a one-time car payment.
- Future payments: You have the option to schedule payments in the future with this online bill-pay feature. When you need to set up a payment in advance so that you won’t forget it later but your bill due date is not immediately approaching, use this online bill payment option.
- Recurring payments: These are typically payments you make on a regular basis, like every month or every three months. Examples include utility bills, child care costs, and monthly premiums for health insurance.
Instant Online Bill Payment
Automated online bill payment, which enables one-time or recurring payments on a regular basis through a bank or service provider, might be for you if you enjoy automated processes that don’t require your constant attention.
You can give your service providers permission to withdraw funds automatically for sporadic, one-time expenses from your account by automating one-time payments. For instance, you can set up your bank to automatically make payments on a rarely used credit card whenever a balance other than zero is tallied.
Your online bill payment service can automatically pay your monthly phone bill or your quarterly insurance payment if you set up recurring payments. The best way to pay bills on time and stay out of late fees is to automate online bill payment for recurring expenses.
Both times, the payment is made without your involvement as the service provider asks the online bill-paying company directly for payment when necessary. If you consent to these kinds of payments, make sure you have enough money in your account to cover them.
If you set up withdrawals that are greater than your balance, online bill pay can result in a negative account balance and related fees. Online bill pay can save time, reduce paperwork, and make life easier. Making the most of this useful banking feature can be accomplished with smart budgeting and close attention to your balance.