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Practical Computer Advice
from Martin Kadansky
Volume 9 Issue 12
December 2015
Should You Use Online Bill Payment? Can You Throw Away Your Checkbook?

Online bill payment is always better, right?
Do you have friends or family members who tell you, "Why are you still writing checks and mailing them? Pay your bills online and throw away your checkbook!"?

Like many well-meaning people, I imagine that they are really saying, "I've found online bill payment useful. I suggest you look into it, perhaps you will too."

Read on to learn what it is and how it works. Your particular bank or vendor's bill payment features may be different, or they may not offer this at all.

What is online bill payment?
There are four common types of online bill payment. The two most useful types are:
  • Manual online bill payment sent from your bank: Many banks have a free online bill payment feature that lets you manually send payments from your bank account to companies and individuals. You might use this to pay almost anything you might pay with a check: Utility bills, credit card bills, professional services, friends, etc. Instead of writing a check yourself and sending it through the mail to your payee, you sign into your bank's web site and authorize them to send the payment for you, which subtracts it from your checking account. Although the details are a little different, sending a payment using online bill payment is a close equivalent to sending a check through the mail.
  • Manual online payment taken by your vendor: Many companies' web sites (including utilities, credit card companies, stores, online vendors like amazon) let you authorize them to take a payment from your bank or credit card account in order to pay your bill whenever you choose. You either enter your account information for every payment, or permit them to store it for your convenience. Either way, you manually choose the amount that they will take for each payment.
Note that setting up manual online payment doesn't commit you to anything. You can always pay your bills a different way (like writing a check) whenever you choose.

The other two types are:
  • Automatic bill payment taken by your vendor: Some vendors' web sites let you authorize them to take payment for whatever you owe them on a regular schedule (e.g., each month) from your bank or credit card account. This can be a convenience for you, especially when the amount changes each month. You can sign back in and stop it at any time.
  • Automatic (regular or recurring) payment sent from your bank: Some banks let you set up regular payments (often monthly) of a fixed amount to a specific payee, e.g., send $100 to your son on the 15th of each month. You may have to arrange this in person at a branch to get it started, and you may also have to go in person to stop it as well.
Note that you can pay many vendors with more than one of these methods. It's entirely up to you which method (or methods) you use to pay any given vendor.

Online bill payment from a bank vs. online banking
Online banking includes a variety of things you can do on a bank's web site, one of which is online bill payment. So, before you can pay any bills online, you first need to set up online access to your bank account if you haven't already.

To set up online banking, go to your bank's web site and click "Enroll" or "Sign up." You'll be asked a series of questions, and you'll probably need your checkbook (to get your routing and account numbers), your social security or tax id number, and probably also your debit card. Some banks complete the process immediately and you'll get (or choose) your username and password. Other banks may send you your username and temporary password by US Mail. As with any username and password, you should keep them in a safe place.

In addition to online bill payment, most online banking systems also let you view your current balance(s), recent transactions, and statements, and they also tend to have email alerts (to notify you of low balances, suspicious activity, etc.), the ability to transfer money between accounts, order checks, submit stop-payment orders, and more.

How to set up online bill payment from your bank
I suggest you start by collecting those bills or vendors you want to "pay online," e.g., bills from your telephone company, electric company or other utilities, your credit card bills, department stores, etc. Then:
  • Sign into your bank's web site.
  • Click on "Bill payment" or "Pay bills."
  • Look for the "Add payee" or "Pay a company" or "Pay an individual" function.
  • Then, for each company or individual you simply enter their name, payment address, and any associated account number,
  • and then follow the prompts to add them to your list of payees.
Some banks also let you give each payee a nickname (so, for example, you can quickly find "Tuck" in your list, but the payment will still go to "John Tucker Landscaping and Lawn Care"), and others let you organize your payees into groups or categories for your convenience.

How to use manual online bill payment from your bank
Once you have created your list of "Payees" or "Pay To accounts," actually paying your bills online is very simple:
  • Sign into your bank's web site.
  • Click on the appropriate account if you have more than one.
  • Click on "Bill payment" or "Pay bills."
  • Look for the list of payees you created earlier (or create more as needed).
  • Find the first vendor you want to pay, click in its corresponding "Amount" box, and then type in the dollar amount you want to send.
  • (Optional) You'll probably see the earliest date by which your bank expects to deliver this payment, often labeled "Deliver By." To delay this payment, change to a later date.
  • (Optional) You may also have the option to type in a Memo for this payment.
  • Repeat these last 3 steps for any other bills you want to pay at the same time.
  • Then click the appropriate button to finish, e.g., "Make Payments," "Send Money," etc. If your payee list is long enough, you may have to scroll down to find it.
  • You'll then see a list of the payments you've just authorized, along with a confirmation number for each one. My habit is to write those numbers on my paper bills so I know that I've paid them.
Then, if you maintain a paper or electronic checkbook register, you should immediately enter all of these payments and update your running balance.

Notice that this is a manual process. No money gets sent until you go to your bank's web site and make a payment, you choose the amount every time, and it is always your choice whether you pay your bills this way or not.

Avoid this dangerous myth regarding online bill payment
There is a bizarre myth out there that paying bills online with a bank account eliminates the need to keep a paper checkbook or write anything down. Like all myths, there is a grain of truth in there plus some terrible misinformation.

Let's say you send $100 to your electric company using online bill payment. It is certainly true that this eliminates your need to write a check, put it an envelope, and spend the postage (and time) to mail it, since the bank will send that money on your behalf.

However, if you also maintain a paper checkbook register (where you would typically write in all of your checks and deposits, and where you would calculate your running bank balance), then you must also record that $100 payment in your register. No, you didn't write a check, but you did spend that money (which will reduce your bank balance), so you should record it. Otherwise, your real-life bank balance will be $100 lower than your register's running balance.

If it is important to you to keep track of your spending and deposits, paying bills online does not eliminate your need to track those payments as well, just because you didn't write a check. If you rely on your paper checkbook to keep track of your running bank balance so you'll know how much money is in your account, then failing to enter into your checkbook register any of the bills you've paid online will create enormous problems for you as your real-life bank balance will be increasingly lower than your checkbook would indicate.

The same logic applies if you track your bank account using bookkeeping software like Quicken or QuickBooks.

Thus, if tracking your bank transactions matters to you, I strongly recommend that you also record every online payment you make, since they will be subtracted from your bank account.

How your bank delivers the money from your online payment to your payee
When you make an online payment from your bank, one of two things typically happens:
  • Payments you send to large companies (like credit card companies and utilities) are usually converted into electronic payments, which get processed more quickly and don't have check numbers. You'll probably see the name of the payee on your statement.
  • For payments sent to small companies or individuals, the bank will print and mail special paper checks with 4-digit numbers (often numbered 5000 or higher) on your behalf, usually for free. Just like the paper checks that you write, those payments aren't processed until your payees actually deposit those paper checks.
Benefits of using online bill payment from a bank
The most obvious benefits are:
  • You can pay bills at any time of day or night, without leaving your house.
  • You can pay multiple bills at once.
  • You won't be handwriting any checks. Instead you'll sign into your bank's web site and pay bills from there with a little clicking and typing.
  • You won't use any of your preprinted paper checks.
  • You won't use any postage to mail them.
  • The bank's web site will keep a history of your recent payments.
In theory, the more bills you pay online, the more check printing fees and postage and time you'll save by paying those bills online.

The downside of using online bill payment from a bank
Depending on how you approach it, there can be some disadvantages:
  • Just like mailing a check yourself, online payments can take a few days (or longer) to arrive, so in order to avoid late fees you should plan ahead. If you need your payment to arrive sooner than online payment can deliver it, call the vendor and discuss faster options (and what fees you might incur).
  • Since it's so easy to send a payment, you might accidentally send a payment twice, or type in the wrong amount, or confuse two vendors.
  • Since your bank's web site might be a bit overwhelming, you might type in the payment amount but then forget to click the button to actually send the payment.
  • Just like writing a check yourself, you might simply forget to make a payment.
  • It's rare, but sometimes online payments just don't arrive. Your vendor might misplace your check, or credit your payment to the wrong customer's account, and electronic payments can simply disappear. You should examine your bills and statements to confirm that your payments have actually left your bank and arrived at your vendor.
Paperless billing and online bill payment
"Going paperless" is completely unrelated to using online banking or online bill payment. Whether you choose to stop your paper bank statements, paper credit card statements, paper utility bills, etc. has nothing to do with how you pay your bills, except for this: With manual payment, if you've "gone paperless" with a given vendor, then instead of mailing you a paper bill, they will notify you by email that your bill is due.

Since email is unreliable, I suggest that you put something on your calendar each month so you can notice if any "paperless bill" notification email doesn't arrive (or an "automatic" bill doesn't get paid) and avoid the possible consequences. If you're facing many months of late fees or possible service cancellation, "I guess I didn't get the email" may not help.

Long-term issues
The longer you use online bill payment, the more likely certain problems will come up:
  • If you permit a vendor to store your banking or credit card acct info (or if they require you to), I suggest you keep a list of which account numbers are known to which vendors, so you can update them when your bank or credit card account information changes or expires.
  • If your vendor account number changes (e.g., you moved to a new house with the same electric company but a different account number), you are responsible for updating your bill payment details, otherwise you'll be sending payments to the wrong account.
  • If you use automatic bill payment, be sure to make a list and tell anyone who might be responsible for managing your financial affairs if you become incapacitated.
  • If you sometimes don't see online bill-related email, check your spam folder.
  • If you stop using the email account associated with your bank account, credit card account, or vendors that you're paying online, don't forget to update all of them with your new email address.
Where to go from here
  • Don't let anyone tell you that online banking and online bill payment are "better for you" than simply handwriting and mailing a check. You might find those services useful and convenient, but you might also view them as redundant wastes of time or unnecessary risks to your security. Only you can decide what's best for you.
  • Manual online bill payment can be more convenient than writing checks or paying by phone, but it's also subject to many of the same problems, and it doesn't eliminate the need to keep track of your expenses.
  • Automatic bill payment cannot guarantee that you have enough money (or credit) to be able to pay your bills, nor whether the payments actually get sent, arrive on time, or get processed correctly. You are still ultimately responsible for seeing to it that your bills get paid.
How to contact me:
email: martin@kadansky.com
phone: (617) 484-6657
web: http://www.kadansky.com

On a regular basis I write about real issues faced by typical computer users. To subscribe to this newsletter, please send an email to martin@kadansky.com and I'll add you to the list, or visit http://www.kadansky.com/newsletter

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Copyright (C) 2015 Kadansky Consulting, Inc. All rights reserved.

I love helping people learn how to use their computers better! Like a "computer driving instructor," I work 1-on-1 with small business owners and individuals to help them find a more productive and successful relationship with their computers and other high-tech gadgets.

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