The Problem
There is a surprising amount of misinformation regarding online bill payment among people who don't really understand what it is and how it works.
Don't let anyone tell you that it's always "better" than traditional payment methods like mailing a handwritten check. Learn what it really is, and then make the right choice for your needs.
What is online bill payment?
The term "online bill payment" literally means any payment method where you would begin the process on your computer or mobile device to pay an individual, a company, a charity, a government agency, etc. using an internet-based method, including:
- Your bank's online banking website or mobile app,
- The recipient's online payment web page or mobile app,
- Or money transfer services or payment apps like PayPal, Venmo, Popmoney, Zelle, Google Pay, etc.
However, most of the time "online bill payment" more specifically refers to paying bills using your bank's website or mobile app to begin the process, without using a money transfer service.
You can pay a variety of people and vendors this way, including your utility bills (phone, gas, electric, cable TV, internet, etc.), credit card bills, rent and mortgage, vendors, consultants, friends, and more.
Bank online bill payment: Advance setup is required
With most banks, before you can pay an individual or vendor you must first sign into your online banking (you'll have to set up access if you haven't already) and add a new payee, where you would enter their name, address, phone, your account number, etc.
That new payee will then be listed on the main page of your bank's online bill payment system, along with any other payees that you may create in the future.
Types of online bill payment
There are four common types of online bill payment:
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You send a one-time payment: You begin the process of sending a specific dollar amount from your bank account to a specific payee.
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You set up recurring payments (sometimes called "AutoPay"): You set up a schedule (weekly, monthly, annually, etc.) to send the same dollar amount from your bank account to a specific payee each time, and you can also specify when the payments will stop.
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You authorize the payee to take a one-time payment: Using your vendor's website, you enter your bank account number and a specific dollar amount, and then they take the money from your account electronically.
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You authorize the payee to take the current amount that you owe each month: Using your vendor's website, you enter your bank account number (or credit card) which permits your vendor to take the money each billing period, most likely a different amount each time. This is sometimes called automatic or automated bill payment. Some vendors will email you the amount they've taken, others won't. When you want to stop this process you'll have to ask the vendor, not your bank.
Myth #1: Online bill payment always makes electronic payments
Most banks have a disclaimer regarding bill payment similar to this: "If the company or person doesn't accept electronic payments, we print and mail a paper check on your behalf."
This means that:
- Online bill payment is not necessarily electronic at every step of the process.
- You certainly start the process electronically using your bank's website or mobile app.
- Then, if the payee accepts electronic payments, which is typical of large companies like American Express, Verizon, Comcast, etc., they'll probably receive your payment electronically.
- However, for all other payees (typically individuals and smaller companies), your bank will print up a paper check and send it to them through the mail, which saves you the cost of the postage and a trip to the Post Office or a mailbox. However, such checks are not guaranteed to be deposited, since they may be lost by the USPS or misplaced by the payee.
- If you maintain a paper checkbook (or use bookkeeping software), you will need to write in each payment (whether electronic or paper) to maintain proper records and not end up overdrawing your account.
Myth #2: Online bill payment is easier than writing a check
This depends on what you consider easier.
If you are comfortable with technology, then online bill payment may well be easier, especially if you're paying multiple bills at the same time.
However, if you find all of this technology (Windows computers, Macintoshes, iPhones, iPads, Androids) to be complicated, confusing, or frustrating, then there is nothing wrong with handwriting checks and mailing them yourself.
Myth #3: Online bill payment is faster than writing and mailing a check
There are different stages to online bill payment, and the time each one takes can vary:
1. How long will it take for you to prepare and send your payment:
- Online bill payment: You'll need to sign in to your bank's website, go to bill payment, find the payee in your list (create the payee if you haven't already), enter the dollar amount, click Make Payments or Send Money, and then enter the information in your checkbook or bookkeeping software.
- Handwriting a check: You'll need to find your checkbook, write the check, put it and the bill stub in an envelope, affix a stamp, put the envelope in the mail, and then enter the information in your checkbook or bookkeeping software.
2. How soon the payee gets your payment:
- Online bill payment to a large company: If they accept electronic payments, they'll probably get your payment within 2-3 days. Note that this type of electronic payment is not immediate.
- Online bill payment to individuals or smaller companies: Your bank will print up a paper check (which may take 3-5 business days, sometimes longer) and mail it to them (which may take another 3-5 business days, maybe longer): 6-10 business days or more.
- Mailing a handwritten check: 3-5 business days or more.
3. How quickly the money gets withdrawn from your account:
- Online bill payment to a large company: The electronic debit will probably occur within 2-3 days.
- Online bill payment to individuals or smaller companies: Some banks deduct the money from your account immediately, other banks wait until your payee deposits the bank's paper check.
- Mailing a handwritten check: After your payee deposits your paper check.
Myth #4: You don't need to write anything down
Not true! If you maintain a paper checkbook or use bookkeeping software, you must keep track of all online payments, just as you would for any other expenses.
Myth #5: You have to give your bank account number to the payee or vendor, or they need to give their account number to you
When you initiate an online bill payment, all you need to know is the payee's name, your account number with them (if any), and their address and phone (if they don't accept electronic payments). You never need to share your bank account number in this case, nor get theirs.
Only when you permit the vendor to take money from your account would you give them your bank account number.
Myth #6: Online bill payment is always safe and secure
While this is true when you are proactively using your own bank's legitimate website, you need to be careful because there are many malicious scammers who may send you emails or other messages pretending to be your bank, your credit card company, or one of your friends or vendors, and then try to trick you into paying them.
Myth #7: Everyone has access to online bill payment
While online bill payment is very common, some banks do not make it available to every customer. For example, business checking accounts sometimes don't have this feature.
Myth #8: Everyone is moving to online bill payment
This depends on the vendor. Many popular online subscription services (for example, Netflix, Amazon, etc.) only accept credit card payments, and thus you cannot pay them via bank online bill payment.
If a vendor accepts handwritten checks, then they can also be paid via bank online bill payment, as long as you don't mind that it will take longer for them to receive your bank's paper check than if you mailed a handwritten check yourself.
Myth# 9: Online bill payment is always free
While many banks don't charge any fees to send money using online bill payment, some always do, and other require a minimum balance to avoid fees. You should check with your bank before using online bill payment.
Also, if you don't leave enough time for your payment to arrive, your vendor may charge you late fees and penalties. See "Myth: Online bill payment is faster than writing and mailing a check," above.
And, just like handwriting checks, if your bank account does not have enough money to cover your online bill payments, those payments may bounce or your account may become overdrawn, both of which will probably incur bank fees.
Using your credit card to pay a bill
Unlike bank online bill payment, for those vendors who accept credit card payments, in general you can't tell your credit card company to send them a payment. Instead, you would tell the vendor to charge your credit card, or you could send your payment using a payment service like PayPal which would in turn charge your credit card.
Where to go from here
