Sara is a copywriter focused on lifting up Recharge's merchants, partners, and their customers. Before Recharge, her past lives included writing and editing at four different subscription... Full bio
What are automatic payments?
Automatic payments (also referred to as automatic bill payments) are payments that a merchant automatically withdraws from a customer’s bank or credit union account. An automatic payment arrangement is often used to pay bills—for example, a monthly credit card bill. Automatic payments are also frequently used for paying utility bills, mortgage payments, and more. Subscription merchants can also set up an automatic, recurring payment arrangement for their products and services, such as gym memberships, curated subscription boxes, newspapers, and gated digital content.
How does an automatic payment work?
To set up automatic payments, first, customers must choose a payment method; i.e. a bank account, credit card, or debit card. Then, they must enter their payment information—depending on the payment method, this can include the account number for a checking account, routing number, the name of the account holder, credit card number, etc. The customer must also give the company explicit permission, or authorization, in advance to withdraw the money from their account at certain intervals. An automatic bill payment can be set up to charge the same amount at each interval (for example, digital streaming services), or for different amounts within a certain time period (for example, a utility bill that changes in pricing month-to-month depending on usage).
What are the benefits of recurring payments?
For merchants, recurring payments provide a reliable stream of recurring revenue, which can facilitate greater ease and accuracy with essential business tasks, such as inventory management and forecasting. However, businesses must maintain accurate account information for their customers, or they can run the risk of involuntary churn if customers’ payment details become out of date.
For consumers, recurring payments can offer enormous convenience and value. For example, a customer of a utility company can avoid making late payments by signing up for automatic payments, thus avoiding late fees. Certain businesses may offer their customers a discount for a subscription—this type of agreement is called “subscribe-and-save.”
FAQs
An automatic bill payment can be set up to charge the same amount at each interval (for example, digital streaming services), or for different amounts within a certain time period (for example, a utility bill that changes in pricing month-to-month depending on usage).
What is the meaning of automatic payment? ›
An automatic bill payment occurs when money is automatically transferred on a scheduled date to pay a recurring bill, such as a mortgage, credit card, or utility bill. Individuals can set up an automatic bill payment through their online checking account, brokerage, or mutual fund to pay their monthly bills.
What are the different types of autopay? ›
What Are the Types of Autopay? Across credit card issuers, you will typically encounter three autopay options. These include setting the automatically paid amounts to your minimum payment, a custom amount or your full statement balance. Paying the full statement balance is the only option that avoids accruing interest.
What is the meaning of autopay in banking? ›
Autopay feature enables the bank to automatically debit your account and pay the bill. This facility is available for select billers who send details of bills due to the bank for online display and payment. When you add a new biller for bill payment through Internet, you can define autopay settings.
Do banks charge for automatic payments? ›
Both the bank and the company might charge you a fee if there is not enough in your account. These fees can add up quickly. Pay close attention to your bank account balance and upcoming automatic payments to make sure there will be enough money in your account when the payment is scheduled.
What is another word for automatic payment? ›
Recurring billing may also be referred to as automatic bill payment.
Why automate payments? ›
Generally, payment automation is used as a tool to make the payment processing for any business faster, more streamlined, and less susceptible to human error and wasted work hours that could be better served on other tasks.
What is the difference between autopay and recurring payment? ›
So in a nutshell, AutoPay/DirectPay is initiated by the bank per payee instructions; Recurring Payments is initiated by the payee, which the bank honors.
What is the downside to autopay? ›
Con: Autopayments Can Be Inflexible
If your customer needs to change their payment schedule or cancel a subscription, it may require time and effort on their part.
How to use automatic payment? ›
You tell the bank or credit union how much to pay and when to pay it each month. The bank then authorizes that amount to be deducted from your selected account each month and transferred to the company you need to pay. The second way to set up automated payments is by using your credit card.
Auto-pay is an automated process, which pays your balance in full each billing cycle 2 days prior to the due date, scheduled payments are manually entered by you for the date you choose each time you make a payment.
Is autopay good or bad? ›
At the end of the day, you should choose to use autopay if that is what works best for your personal finances and lifestyle. Automated payments help if you are balancing a lot of other responsibilities, consistently keep money in your accounts, and don't want the stress of remembering to pay bills every month.
What time do automatic payments go through? ›
It's best to schedule automatic bill payments a few days before the due date, as they can take up to five business days to process. How do you set up automatic bill payments? You can set up automatic bill payments through your bank or the company you want to pay (such as your utility or credit card company).
Can a bank reverse an automatic payment? ›
Yes. Banks can reverse ACH payments under certain circ*mstances. This process is known as an ACH return or ACH reversal. Still, just because banks can reverse ACH transactions doesn't mean they always will.
What is the difference between ACH and autopay? ›
An ACH payment is a payment sent via the ACH (Automated Clearing House) network, an electronic network used to send paperless payments between bank accounts in the United States. If you think of payments as the money taken out of your account when you have your monthly bills on autopay - that's typically done via ACH.
How safe are automatic payments? ›
In general, using autopay is considered safe. Follow our guidelines: Explore your autopay options. Choices include whether you can use a credit card or just a bank account, and whether you still wish to receive an online invoice or paper bill in the mail.
Are automatic payments a good idea? ›
Payment history on credit accounts is the most influential factor that affects your credit score. Setting up automatic bill payments for loans and credit lines is a way to establish a positive credit history that improves your credit score and avoid late payments that can drag your score down.
Is automatic payments safe? ›
Though you can “set it and forget it” with automatic bill payments, you should still monitor your bank and credit card accounts for duplicate charges and other errors. For example, some card issuers may continue taking your automatic payment until you cancel—even if your credit card balance is $0.
Is it better to do automatic payments? ›
Pros of Automatic Payments
You also won't have to worry about late fees. Automatic payments can even help you build a history of on-time payments and boost your credit score. Sustainability: If living an eco-friendly lifestyle is a priority for you, setting up automatic payments can help.
