Automated Payments

An automated payment is a payment that’s automatically sent to a biller from a business’s bank or credit card account. Automatic bill payments can be made with debit cards, credit cards, checking accounts, or savings accounts. The owed amount is collected automatically by the biller according to the payment schedule.

How automatic payments work

Automatic payments can cover several types of payment transactions, including:

• Credit card bills
• Service bills (rent, electric bills, internet, and so on)
• Loans

To set to automatic payment, employers notify their bank to make the payment each month. The account holder (employer) can set the payment terms, such as amount and frequency, although vendors can often charge the checking account for the amount owed each month. In either case, the entity making the payment must initiate the process and provide the necessary information required to set up payment.

On the scheduled payment date, the automated payment system requests to transfer the specified amount from the business’s account to the employee’s account. This is usually facilitated by a bank.
The bank verifies the transaction details, confirms the business has sufficient funds in its account, and processes the payment. The funds are transferred from the employer’s account to the employee’s account. After the payment is processed, both parties receive confirmation and the business must reconcile the payment received with its accounts receivable.

Alternatively, some companies allow clients to set up automatic payments on their website or through their customer service.
Employers using a global payments platform can automate recurring payments, send payments to 10k beneficiaries at a time, schedule payments, and automatically split payments in multiple currencies.

What are the pros and cons of automated payments?

Pros:

1. Payments are easy to automate
2. Automatic payments help entities always pay on time
3. Paying automatically keeps important relationships intact
4. After setting up payments, employers don’t need to follow additional steps each month
5. Faster cycle times
6. Transactions are cheaper
7. They increase fraud prevention
8. Employers and employees experience fewer errors
9. They’re better for the environment

Cons:

1. Without sufficient funds, automatic payments will bounce
2. Late or returned payments can result in fines
3. It’s harder to catch mistakes or fraud with automatic payments
4. It may be complicated or time-consuming to cancel automatic payments

Are automated payments safe?

If the vendor or employee information isn’t correct, the business could be at risk of fraud. For example, the billing information may belong to a ghost employee or the vendor’s information isn’t verified.

How to manage automatic payments

Managing automatic payments is essential for maintaining financial health. Here are the steps to follow:

• Understand the finances: Affirm there are sufficient funds to cover payments and avoid overdrafts or missed payments. Set up notifications for low balances or upcoming payments.
• Determine the right expenses for automatic payments: Recurring expenses rent, insurance premiums, and service providers are all suitable for recurring payments.
• Gather necessary details: Gather important information for each bill, such as billing cycles, due dates, account numbers, and payment amounts. Ensure you have a clear understanding of your budget to prevent overdrafts or missed payments.
• Set up automated payments: Contact each biller or employee to set up payments.
• Review the terms and conditions: Read through the terms and conditions during the setting process, noting any fees. Keep all confirmation emails or documentation.
• Review payments: Regularly review automated payments to ensure they’re still relevant and accurate. Cancel any unnecessary payments.
  Monitor transactions: Keep an eye out for discrepancies or unauthorized charges and communicate any issues with the bank or service provider.

Example of an automatic bill payment

Businesses can use automatic bill payments for a subscription, utility bill, or loan. Other examples are:

• Employee salaries
• Rent
• Software subscriptions (e.g. payroll platforms)
• Internet service providers
• Insurance premiums
• Reoccurring vendor payments