Thousands of consumers take advantage of the convenience that automatic bill payment systems provide. These users can pay their utility bills, auto loans and insurance premiums without the need to write a check or lick a stamp. Two of the most popular automatic payment methods are direct billing and automatic withdrawal. These methods function in different ways and carry noticeable advantages and drawbacks for customers.
Functions of Direct Billing
Customers who use direct billing authorize the issuer of the bill to withdraw the amount of the bill from the customer's bank account. The customer typically sends the issuer a voided check, savings deposit slip or other form to show the bank account number and routing number. The issuer withdraws the funds on the bill's due date to ensure prompt payment. If the account has insufficient funds to pay the bill, the customer may face a non-sufficient funds charge.
Drawbacks of Direct Billing
Scheduled payments that carry the same amount every month, such as car loans and insurance premiums, allow the customer to estimate how much the withdrawal will be and when it will take place. Customers may have less flexibility with payments that carry amounts that vary from month to month, such as electricity, gas or telephone bills. Also, the customer must ensure that sufficient funds are available in the account on the due date or face additional NSF fees.
Functions of Automatic Withdrawal
With automatic withdrawal payments, customers authorize their banks to make their bill payments on their behalf. Automatic withdrawals -- also known as electronic funds transfers and bank drafts -- are often used to pay regularly scheduled bills with predictable amounts. If a customer does not have sufficient funds to cover an automatic withdrawal, the bank may choose to postpone the payment until the funds are available rather than charge the customer an NSF fee.
Drawbacks of Automatic Withdrawal
Since the authorization for automatic withdrawal payments falls to the banks, companies that issue bills for irregular amounts may not receive their payments until the authorization clears the bank's system. These delays can lead to late payments, penalties and interrupted service. Customers must review their bank statements and activity records to determine if the bank is sending the payments in the proper amounts at the correct time, especially for bills that have variable due dates and amounts.
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