How Does Automated Bill Payment Work?


Quick Answer

Automated bill payments occur when a bank or credit card company automatically sends payments to a billing company at a customer's request. Automated bill pays are either initiated on the bank end or directly through the company that is being paid with a pre-authorization from the consumer.

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Full Answer

Monthly automatic bill payments are set up through a bank account; this is easily done online. Most banks have an online bill pay option for a customer who is logged into her online banking accounts. The consumer simply instructs the bank which bills to pay and when, then the payments are sent out on time each month.

The consumer also has the option of going directly to the company that is being paid and giving the company bank or credit card information, so that the company has the ability to automatically deduct a payment each month. The consumer gives permission for the company to do this by agreeing to a reoccurring electronic funds transfer.

The consumer can cancel an automated payment schedule once she no longer wants payments sent directly to the billing company. When set up correctly, automated bill payments help consumers stay on time with their bills and avoid a termination of service or late payment fee that occurs when a bill is paid late.

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