The Hidden Risks of Automatic Bill Payments
Your business has to pay many bills — phone bills, utility bills, Internet bills, and more. If you tend to have an adequate bank balance, it probably makes sense for you to set up an automatic bill payment mechanism. And while it’s a good way to ensure you don’t miss deadlines (and to speed up a mundane task), you must also keep in mind that business owners often do not pay much heed to automatic payments once they’re set up, and that creates a loophole. Here are some important points to keep in mind:
Risk 1: You may overpay.
Setting up automatic bill payments should only be used to facilitate the payment process. Though business imperatives pull you in different directions simultaneously, the auto-pay option is not a “set it and forget it” process. Invariably, errors creep into bills. If you were paying them manually, you would probably have detected those errors in the few minutes you spend sitting with the bills and writing checks. But when the payment is automatic, there’s a good chance that you may not even look at the bills! So make sure you monitor payments with the same degree of oversight that you would use if you were manually paying bills.
Risk 2: You have trouble turning it off.
All automatic bill payment methods present a way to discontinue the debit mandate. But I have had multiple personal experiences where my account was debited even though I did all that was needed to discontinue automatic payment. If you turn off your auto-pay or make changes to your payments, make sure that you keep a close watch to ensure those changes take effect.
Risk 3: You go over-budget.
When writing a check, you’ll likely notice if your bill exceeds the expected amount. But it’s easy to let budgets get out of hand when automatic bill payments stealthily withdraw money from your account. Not to sound too dramatic here, but I have come across business owners who didn’t notice their bill payments sky-rocketing until they bled too much.
Risk 4: Changes don’t get implemented.
Because of superior pricing, promotional offers, or a new banking relationship, you may want to change your automatic bill payment provider. It’s tough to do this with precision. There’s a good chance that your former provider will discontinue payment before the new one initiates it. So you could end up wrongly assuming that your bills are paid. This can cause an interruption in service, or worse, penalties. There’s also the chance that both providers would end up paying a bill, thereby doubling your payment for that specific period. Since auto bill pay mechanisms tend to be configured for periodic payments, you would likely get credit for the extra payment, but the extra outlay has the potential to create a cash flow problem.
Risk 5: There may be hidden costs.
Most business owners manage to find deals for automatic bill payment at no cost. If that isn’t the case, make sure you understand the charges involved. Especially in the case of small bill amounts, the fee can end up being a significant percentage of the bill.