What Is Online Bill Pay?

Definition & Examples of Online Bill Pay

Man paying bills online
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Online bill pay is a digital banking or payment service that lets you pay bills over the web from a bank account—often at no extra cost. It can simplify your finances by eliminating the need to write out checks or count and distribute paper currency.

It takes a few minutes to set up your online bill payment, but once it's set, you don't have to worry about missing your payments. Understanding what online bill pay offers and how it works can help streamline your cash flow and simplify your life.

What Is Online Bill Pay?

Online bill pay is a service that allows you to set up electronic payments for your bills online. This service can usually be set up through your bank or directly through service providers.

Banks

With the bank model, you give your financial institution information about recipients to whom you owe money, be it another bank or a business, and the bank sends money to that recipient.

Depending on the payee, the bank will issue an electronic payment or a paper check using funds drawn from your checking, money market, or other eligible account within one to five days. If a recipient company is already set up within the bank's system, the bank can often transfer the money electronically on the same day. Many banks impose no limit on the number of bills you can pay through the feature.

Service Providers

This online bill pay system works like the bank system, but in reverse. You grant phone companies, mortgage companies, utility providers, or other service providers your bank account information so that they can withdraw from the account to pay for the company's services.

Electronic payments often reach payees within two days or less, whereas paper checks can take four or five days depending on the bank.

How Online Bill Pay Works

To set up online bill payments, you'll need to create an online account with your bank or service provider and then set up your account for payments. Follow these guidelines to set up payments through your bank or service provider.

How to Set Up Online Bill Pay With a Bank

To make payments online through your bank, log into your bank's website and go to the Bill Pay section. Click on the relevant link to add a new payee and then type in the name of the recipient company. You’ll need a copy of a bill issued to you by a service provider so that you can copy the address and your account number, along with any other essential information, from the bill.

Enter the desired payment amount and schedule and complete the setup sequence. Thereafter, each time you want to make a payment, simply enter the amount of the bill and schedule your payment.

How to Set Up Bill Pay With a Service Provider

To establish online bill payment with a service provider, you’ll often need to provide a voided check and an authorization form to grant the company in question permission to withdraw funds from your bank account. You'll be asked to provide bank account information such as your account number and any routing numbers associated with the checking account, either in the authorization form or separately.

In some cases, you may be able to supply your debit card information instead of a checking account. You may also be able to deliver bank account information online without providing a voided check, but you might have to verify your account in some other way.

Again, you will be asked to specify the payment amount and schedule before you complete the bill pay setup. A typical payment date is the bill due date for the company, but you should confirm that your payment will be credited as on time. Once things are up and running, payment will go directly from your bank account to your service provider.

To be safe, individually verify the online payment instructions or requirements of each payee, be it a bank or service provider.

How to Choose Online Bill Payment Types

Once you set up the payment system, your bank or service provider will generally give you the option to make one of a few useful types of payments through online bill pay:

  • One-time payments: As the name suggests, this is a payment you issue a single time. This option makes sense for services you use infrequently, such as a landscaper or a lump-sum payment on a car.
  • Future payments: This online bill pay option gives you the ability to schedule payments at a later date. Use this online bill payment option when your bill due date isn't in the near future but you want to set up a payment in advance so that you don't forget it later.
  • Recurring payments: These are generally payments you make at regular intervals, such as monthly or quarterly. Health insurance premium bills, utility bills, or monthly bills for childcare are examples.

Automatic Online Bill Pay

If you love automated processes that you don't require your constant attention, automated online bill payment facilitates one-time or recurring payments on a regimented basis through a bank or service provider.

By automating one-time payments, you can authorize your service providers to pull money from your account for irregular, one-off expenditures without any activity on your part. For example, you can have your bank automatically make payments on a seldom-used credit card whenever the card accrues a non-zero balance.

If you automate recurring payments, your online bill payment service can pay your monthly phone bill or your quarterly insurance payment. Automating online bill payment for regular expenses is a great way to pay on time and avoid incurring late fees.

In both cases, the service provider directly asks the online bill-paying company for payment as needed, and the payment is made without your involvement. If you authorize these types of payments, keep enough available funds in your account to cover them. Online bill pay can save time, reduce paperwork, and make life easier, but it can also lead to a negative account balance and associated fees if you set up withdrawals that exceed your balance. Shrewdly budgeting and paying attention to your balance can help you make the most of this convenient banking feature.

Key Takeaways

  • Online bill pay is a convenient service offered by many banks, credit unions, and service providers, which allows you to set up automatic electronic payments for your bills.
  • Payments can bet set up for one-time, future, or automatic recurring transactions.
  • To use this service, you will need to create an online account with your bank or service provider and provide your payment information.
  • Always be sure you have enough money in your account to cover any payments you make online.

Article Sources

  1. Bank of America. Bill Pay and eBills FAQs. Accessed June 22, 2020.

  2. Consumer Financial Protection Bureau. "How Do Automatic Debit Payments From My Bank Account Work?" Accessed June 22, 2020.

  3. Bank of America. "Using Bill Pay Is Easy." Accessed June 22, 2020.

  4. Wells Fargo. "Online Bill Pay." Accessed June 22, 2020.

  5. Consumer Financial Protection Bureau. "Ways to Pay Your Bills," Page 2. Accessed June 22, 2020.