Automatic Bill Payment: What is It and How Does It Work?

Accepting automatic bill payments from your customers is a great way to save time and effort. By allowing autopay from your customers, their fees or payments will be automatically withdrawn and deposited into your account regularly, without the need to send out regular invoices. It is a more environmentally friendly, easier, automated way to get paid faster, and your clients will also love the simplicity autopay provides to their lives.

Key Takeaways

• Autopay is the automatic withdrawal of funds from a client account that is deposited directly into a business account
• Accepting autopay will save you time and allow you to focus on other aspects of your business 
• Customers will appreciate the simplicity of sending automatic bill payments over receiving an invoice every month
• Automatic bill payment improves your business cash flow as you will know when to expect payments to come in

Here’s what we’ll cover:

What is an automatic payment?

How to Set Up Automatic Payments

How Do Automatic Withdrawals Benefit Businesses?

When Shouldn’t You Automate Bill Payments

How to Manage Your Automatic Bill Payment

Conclusion

Frequently Asked Questions

What is an Automatic Payment?

An automatic bill payment is an electronic payment system in which a customer schedules a money transfer to pay a business for a single or recurring bill.

It’s common for customers to schedule automatic payments on a monthly basis for set charges like a phone bill, credit card payments, utility bills, car payments, and internet bills. For business-to-business transactions, automatic bill payments usually involve a client paying a business for a set service each month. For example, a client could schedule a payment for the first of each month to pay a freelance marketing consultant for a social media management fee.

How Do Automatic Bill Payments Work? 

Now that you’ve gotten the answer to “What is autopay?” you may wonder, “How does automatic bill payment work?” It’s simple: An agreed-upon amount of money is transferred from your bank or credit union to pay a bill. Once you set it up in your banking app, you don’t need to take further action, and the money will be paid automatically.

How to Set up Automatic Payments

If you’d like to better understand how your clients can schedule automated payments, or if you’re interested in paying bills with the service, here are three methods of setting up automatic bill pay:

Through Your Financial Institution

1. Log in to your bank’s online banking portal through its website or mobile app.
2. Navigate to the Bill Payment page of the site.
3. Click “Add A New Payee.”
4. Enter the company name.
5. Add your account number with the company.
6. Schedule a single payment, or use automatic bill payment to schedule recurring payments according to a set schedule.

If you need a step-by-step walkthrough of the process read our post on How to Set up Automatic Payments for your business. Note that the steps may vary slightly from bank to bank. If you have trouble, contact your bank directly for assistance.

Automatic Bill Payment Through a Business Website

Setting up automatic bill pay directly through a business’s website is another option, but the process to do so varies from business to business. Here are the basic steps you’ll need to follow, but if you have trouble setting up the service, contact the company directly for assistance.

1. Log in to your online account on the business’s website or mobile app.
2. Navigate to the Billing or My Account section of the site.
3. Click on the option for Automatic Bill Payments or Recurring Bill Payments.
4. Choose your payment method, whether a credit card account or online bank withdrawal.
5. Set the payment schedule you’d like your payments to follow, whether weekly, biweekly, or monthly.

If you use a cloud-based accounting solution, your clients can set up automatic bill payments using a credit card directly through your accounting software. The steps for setting up the service will vary depending on the service provider. Here’s how to set up automatic bill pay through FreshBooks:

1. Go to the Invoices section and click Create A New Invoice.
2. Fill out the Client information and invoice details, then click Make Recurring in the Settings panel on the right.
3. Choose the recurring schedule by selecting a Start Date, How Often to generate invoices, How Many invoices to generate, and select the Delivery Options.
4. Click Done to confirm the invoice and scheduling details.

Your client will now be billed automatically and can set up automatic bill payments on their end using a credit card. Your clients can learn how to set up automatic payments here.

How Do Automatic Withdrawals Benefit Businesses?

Small businesses can benefit from accepting automatic bill payments by saving time and improving the payment experience for their clients:

Lower Business Costs (and more environmentally friendly)

With automatic bill payments, you can cut down on the need for office supplies like paper, envelopes, and postage since instead of sending out invoices or checks by mail, everything is generated, sent, and processed online, with no paper wasted. Green solutions benefit the environment and make you more attractive to clients who are mindful of their environmental impact.

Save Time

Accepting automatic bill pay will save you time and allow you to focus on more critical areas of your business. Instead of generating invoices manually, sending them to clients, processing payments, and following up on late payments, your accounting software can generate invoices for you automatically and your client’s credit card can be charged automatically. With the whole process automated, you’ll spend far less time on invoicing than before.

Better Client Experience

Your clients are busy, and they, too are looking for ways to save time. Automatic bill pay allows them to set up a payment schedule and forget it, so they no longer have to take time to process and schedule invoice payments. Auto bill pay can also lead to a better client experience because you’ll no longer have to follow up on unpaid invoices or charge late fees, which can damage your client relationships over time.

Improve Cash Flow

Automatic bill payments improve your business’s cash flow because you no longer have to wait for payment. Instead, you’ll know exactly when payments are processed each month and the money will land in your business bank account within a couple of days. Knowing exactly when you’ll receive payment improves cash flow and lets you plan ahead for any necessary expenses.

Increase Payment Security

Because auto-pay allows clients to pay bills through verified, encrypted software directly from their credit card or checking account rather than paying cash or mailing a check, it offers your clients increased security and peace of mind.

Do you need a new way to accept payments online from customers? Check out the FreshBooks Payments to learn how to accept instant cash through Paypal, credit cards, and Stripe. We make it easier for your small business to get paid now.

When Shouldn’t You Automate Bill Payments?

You should not automate bill payments if you are not certain you will always have enough money in that specific account to cover the automatic deductions each month. The overdraft risk is high, which can negatively affect business relationships and your credit score.

How to Manage Your Automatic Bill Payment?

Instead of obsessively looking through bank statements and online bill payment apps, the easiest way to manage automatic bill payments is by using professional accounting software like FreshBooks. With help tracking incoming and outgoing money, you won’t have to worry as bills are automatically paid on time.

Conclusion

Automatic withdrawals are an easy way to ensure that bills are paid on time. If you own a small business and want to receive recurring payments from clients quickly every month, changing your business model to accept automatically deposited payments will help you save time, money, and stress, knowing when you can expect invoices to be paid each month which improves cash flow. This also provides a better client experience, as it saves them time and stress.

Incorporating accounting software into your invoicing, payment processes, payroll, and other needs can keep things running smoothly, so you can be more hands-on and focused in other areas of business. When you stop using paper bills and instead start utilizing online tools and autopay features, you will increase client satisfaction and reduce your impact on the environment.

FAQs on Automatic Bill Payment

Do banks offer automatic bill payments?

Yes, most banks offer automated payment (meaning bills that are automatically paid from a bank account). You can find this information in the section of their website that describes their online bill payment services.

Is it safe to pay bills with autopay?

Yes, it is a secure method of bill payment, as long as you are certain you will always have the correct amount of funds available in your bank account. You will default on payment if you do not have the money in your bank. Missed payments will negatively affect your credit score and cause overdraft fees to accumulate.

What is the difference between billing and autopay?

When you are billed for a service, you must take action to pay the bill yourself, while with an autopay setup, the vendor initiates the charge to your bank account, debit card, or credit card in recurring automatic payments.

What is the safest way to pay your bills?

It is usually safest to pay bills using a credit card because they offer strong security measures, fraud protection, and help in the case of unauthorized charges. Online bill pay through your bank is also very secure, but you will want to initiate the payment or set up the autopay function yourself without giving anybody else access to your bank account information.

Do automatic payments hurt your credit?

Your credit score may be damaged if you do not have enough money in your bank account to cover your autopay bills, like phone and credit card bills. It is important to keep a close eye on your cash flow if you have authorized automatically recurring payments from your account so you do not accidentally have missed payments on your record.

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