The Risk of Automatically Paying Your Bills

by Kevin on March 27, 2009

A lot of people disagreed with my post yesterday. I said that companies want you to sign up for electronic billing less for going green street cred and more for hoping you miss, delete, or forget your bill. All of the above result in late fees and interest charges to you.

Many of you chimed in saying the companies simply wanted to save the cost of paper and printing. While I do agree that is a benefit I still believe the company wants you to forget your bill.  I will admit there can be significant cost savings to reducing printing. Yet companies continue to send out marketing letters to me on a daily basis. Sure the postage may be a bit less, but occasionally they use more paper than a typical invoice in one marketing letter. (And you guys realize most companies outsource the printing of all of this, right? It is just a line item on a budget.)

Perhaps many of you don’t get much e-mail and receiving an e-mail is a rarity. This is simply not the case for me — I get tons of emails on two separate accounts and tracking all of it is difficult.

Whether or not you agree with me I plan to show you ways to avoid falling into the trap.

Setup Automatic Payment

The easiest way to avoid late fees and interest from your electronic bill is to setup automatic payment.

Depending on your service provider you can easily set up payment to automatically be deducted from your bank account or added to your credit card. Generally the payment happens on the due date of the bill. Some firms will let you setup a different date such as “three days before due date” on the bill, but I haven’t experienced this much.

Setting up automatic payment should eliminate the risk of you forgetting your bill or never receiving the e-mail. You get to save the company cost in paper, and you feel good because you save trees from not receiving paper bills. All is well, right?

The Risks of Automatic Payment

Hold on a second — there are some additional risks here, too.

Your Payment Doesn’t Go Through on Time

For whatever reason the automatic billing system doesn’t work. You are charged late fees and interest. Yes, you have the ability to call, complain, and have the charges reversed. But how much of your time was just wasted? This might not be a problem if you could setup your automatic payment to hit five days before the bill’s due date. Then you could check your balance and/or your checking or credit card account to verify the bill payment was charged to you. Again, I haven’t experienced many systems that will let you automatically pay your bill a certain number of days ahead of each payment.

You Neglect the Billing Details

In my opinion this is the biggest real risk. While setting up auto-payment will likely save you time and prevent you from penalities if you forget about the bill you risk not looking at the bill at all.

I’m not saying your company is going to intentionally put errors on your bill. But what so many stories about firms like Sprint and Charter Communications having billing errors (and then it taking 5 calls to resolve the issue), I think this is still a real risk. Personally I know we’ve gotten some incorrect bills. Surely you have to. Imagine if you just paid them and ignored how much the end cost was?

Let’s take medical billing for example. Have you ever had a medical bill be incorrectly entered? Your insurance company will pay for X checkup, but only 50% of Y checkup. What is entered into the system is Y checkup. You pay your co-pay and go on your merry way. But what if you paid that medical bill automatically? Sure you would see notification that the bill came in, but hey it’s on automatic payment, right? No need to look at it.

That is until a few weeks later when you discover it had been charged incorrectly. Now you’ve got a headache on your hands having to go back, talk to the doctor’s office, and talk to the insurance company.

Now I know you don’t pay your medical bills automatically. It’s just an example. Pick your least favorite service company. Surely they have charged you wrong for something in the past.

And yes, you should be able to get your money back. But more time is spent on the process. You’ve got to sit through automatic phone-tree customer service.

How to Avoid Automatic Payment Issues

You might think I hate automatic payment. Nothing could be further from the truth… but you have to keep an eye on it. Watch out for those incorrect charges before the bill gets paid.

The easiest way to avoid these issues is to have a budget. It is truly that simple. If your budgeted (expected) cost each month for a utility bill is $75 and it comes out of your budget at $150 you should notice. We use Excel to track our budget and costs — so if I go in to manually enter in the payment, I should notice there is a significant difference in what I was expecting. This is a red flag and gets me to look at the bill.

The other simple idea is to simply put something on your calendar to look at your bills. You might set it up weekly to go through and check the bills that should have come in that week.

These are simple steps. (Besides everyone should have a budget anyways!) But finance is about simple, easy steps to success. Don’t make it more complicated than it needs to be.

The bottom line is I feel you cannot put your finances on 100% autopilot. Feel free to setup your bills to arrive electronically. Setup your automatic payment. Just setup your red flags and reminders so you don’t have something slip through the cracks.

{ 1 trackback }

Have you been presently having difficulty paying your bills? Must you get both hands on some funds quickly, and do not have to leap by way of plenty of hoops? Then, you really should consider obtaining a cash loan. Before completing this even though, see
February 13, 2013 at 12:41 pm

{ 16 comments }

Adam March 27, 2009 at 7:51 am

Going back to yesterdays post, I have to agree with you. After I signed up for electronic billing at Chase, I missed a payment because they sent the email to the wrong address. I then had the email address changed and they still neglected to send it to the right one stating that I never changed it. I fought the charges and had them removed. However, some individuals who may be afraid of confrontation may have paid the charges as-is. Chase would have won in that regard. Even if only 25% of the people miss their payment, they still make a lot of money in fees!

Nate @ Debt-free Scholar March 27, 2009 at 8:11 am

I am with you entirely. We just had problems with two services that we quite last year auto billing us.

Great post!

Thanks,
Nate

[email protected] March 27, 2009 at 8:56 am

What an interesting perspective! I haven’t had any major errors, but I do spend a few minutes checking them most months. For me, the benefit of possibly not catching an error is outweighed by knowing that my bills are paid on time.

I’ve also very carefully chosen the companies with which I bank and only bank with three credit unions that are known for their outstanding customer service. That doesn’t help for things like the water bill and other utilities, but it does help for making sure the credit card bill is paid each month.

Jason Unger March 27, 2009 at 9:28 am

Great tips. I find that most people who worry about automated payments are concerned that they’ll be that perfect storm — all their bills come due at the same time and their account is maxed out.

Have you thought about keeping a financial cushion? Basically, you have money in your account that is only there for the times this perfect storm happens.

Kevin March 27, 2009 at 9:40 am

Glad some people are seeing why I wrote this!

@Jason: I wrote about building up a financial buffer with The Concept That Changed Our Financial Life.

Corporate Barbarian March 27, 2009 at 10:48 am

I use automatic billing whenever I can, but I always check the statements. I caught a charge on my cellphone bill for a service that my son was spammed for. If i didn’t check the bill each month, it would have cost me about $100 by now. I agree with your theory – most people probably don’t take the time to check.

Abigail March 27, 2009 at 11:32 am

Well, I still disagree with you about the root cause of the electronic billing. They’d be sending out the offers anyway, so by at least making the statements electronic, they are still saving quite a bit of moolah.

Still, I do hope this post helps a few people.

At least for me, though, electronic billing actually helps me avoid late charges. I tend to let mail pile up. I see that it’s a statement so I say I’ll check it later. This way, I log in, check the balance, click once and look over a statement, and then make a payment. And in about 4 years of electronic billing, I’ve never had a problem with a payment not going through. Perhaps I’m just one of the lucky ones?

I know Lauren said she and her partner have to tack the bill to the fridge… I find that it’s simpler to just write the due date down on a calendar (generally a few days beforehand, so in case I procrastinate or forget to check for a couple days, I still have time).

Finally, there’s one surefire way to avoid missing payments. It’s a favorite of mine: Make payments every time you get paid. At least a couple folks have written about this recently. You get to feel like you’re making more progress more often. You’re constantly aware of your balance and any due dates. And you will pretty much never miss a payment because at least twice a month you’re paying the bills down.

Baker @ ManVsDebt March 27, 2009 at 2:18 pm

I agree with the point of this post. For me, you don’t miss a pay because an e-mail was sent to the wrong e-mail address. The only way you miss that bill is if you aren’t on a budget, paying attention to your current budget, or totally out of touch with your financial situation. Sure, it would be nice to always getting the e-mail to remind, but you should be able to pay bills with out an e-mail reminder.

How you end the articles hits the nail on the head. It’s impossible to autopilot 100% and even if you could it wouldn’t be a good idea. You have to have another system to catch something from falling through the cracks!

Well done, sir!

Do You Dave Ramsey? March 27, 2009 at 4:57 pm

Hmm, I’m still not 100% with you. You know I love your work Kev, but I think this discussion isn’t firing on all cylinders.

There are 3 ways to handle bills… paper bills, electronic bills, and autopay…

But to smooth the arc there are really 5 ways to handle bills

paper bill – paper check
paper bill – e-check
e-bill – paper check
e-bill – e-check
autopay

If I understand correctly, you prefer paper bills to e-bills (regardless of how you choose to pay) and that you really like autopay provided personal accountability is still part of the mix.

I can live with this but I find it helpful to acknowledge each of the variations. I personally live at the extremes… give me all paper of automate the whole process – I don’t want half baked solutions.

I do exactly as you with my autopays and manual entry into a budget spreadsheet – only way to go in my mind.

So, with that in place… we’re of 1 mind to this point…

Here’s where I start to question…I’m wondering why you have an attack mode going against the service providers.

I’ll take this in two parts.

First – you have to realize that large corps are broken into and managed as either profit or cost centers. If I run Billing Ops then I could care less about the Sales and Marketing teams. A HUGE chunk of my budget is invoicing and payment processing… this requires a lot of mail and people. If I can start to automate large % of my effort then I can have a great impact the costs I bring to the table.

Sales and Marketing on the other hand have a different metric and budget… direct mails are a small % of their overall budget so removing it altogether would not move their cost meter but would impact their touches and conversions – profits.

Second – you have to consider to which vendors you provide autopay access. I can trust my power cooperative more than my credit card for example.

I get your point about medical bills but for most all of us these are not recurring expenses and would not likley be set up for autopay. Again, know who you’re allowing access.

The bottom line for us – and this is HUGE – is personal accountability. If I’m paper but don’t balance my checkbook I’m an idiot but the same goes if I’m all electronic.

Meanwhile, some companies have harsh or suspect policies but most of those (unless it’s a credit card company where all bets are off) are in the sales tactics. Most “gotchas” are going to come from a profit center like sames then from a cost center like billing.

This is a great topic and I’m glad you tackled it… I just think there are other moving parts.

Busy Mom March 27, 2009 at 5:00 pm

Kevin,

I read your post last night and TOTALLY agreed with you. I did not take the time to comment since I figured we were all on the same page. I guess not.

I find errors every 2 or 3 months with our bills. There is NO WAY I would setup automatic payments for utilities, car payments, etc.

I do use bill pay. After reviewing bills for accuracy, I assign a date (a few days ahead of time) for payment. My credit union has never missed a payment.

Thanks for the post. In my book, Kevin, you are DEAD ON. I greatly appreciate your blog.

Keep up the great work!

barnegat48 March 27, 2009 at 9:35 pm

I agree with most of this post, but not for the same reasons.

A few years ago when online bill payment was new, my car insurance premium fell through the cracks and wasn’t paid by my payer. The company canceled my insurance immediately and didn’t notify me, so I had to appear in court and pay a ticket when I was stopped for something else and had no current proof of insurance.

The biggest obstacle for me is that I am paid every two weeks and I don’t keep much cushion in my checking account. So if I set up payments to occur on the same day each month, there’s a good chance they will bounce.

I also had a scary experience when I had all my bills on e-bill and my computer died. For a month I had no idea what was due or when. Now I get the bills on paper and schedule them for online payment the day after my check is deposited. no muss, no fuss, no more problems.

Jamillah March 28, 2009 at 6:33 am

You are right. I am a former WAMU costumer who had their payment set up on my for my card, then they switch to Chase. I was told that I was late, pay $244 in all and had my credit line reduce by $300. I was so mad but I let it ride. I was never late during my time with WAMU so I could have fought the charges. I was more upset that someone from India (with a bad attitude) calling me from a New Jersey number for Chase. The same for my Comcast bill…I was paying that on-line but I was receiving snail mail bills. If I wasn’t on time with my payment they were going to put added charges onto the bill. I put that on automatic bill pay so I know that it is paid on time. I also make sure that I look at the online notice bill, make the proper payments and set it to pay before the due date. That way I know that it is applied to my bill. They are trying to get more money from you no matter what. We have to be diligent on stopping them!

Kevin March 29, 2009 at 12:16 pm

@Corporate Barbarian: Yea I’ve heard of parents having to “bail out” their kids from text message services. Good thing you caught it.

@Abigail: That’s a decent idea (making payments every time you get paid). But I suppose it would depend on whether or not your service provider would let you do just that.

@Baker: Thanks!

@Do You Dave Ramsey: Actually I do like electronic billing, but I think there is a risk involved. I see your point from the business perspective – but – and this is a big but – should firms be managed as cost centers? Why not look at the firm as a whole in terms of costs and say hey marketing department, cut down on your paper, too.

We definitely agree on personal accountability — something that I think is sorely lacking in our society. And hey, I love when people disagree. Seriously — it makes me challenge my own assumptions and conclusions. I have been known to change my mind every once in a blue moon.

@Busy Mom: Glad you agreed — thanks for stopping by!

@barnegat84: Wow I hadn’t thought of what would happen if our computer(s) died and we were unable to access our bills. I suppose I could do it at work, but for those that don’t use computers at work (or are not allowed to) the library or a friend’s computer would be the only option. Thanks for bringing this up.

@Jamillah: Wow I don’t think I would let $244 ride on anything. I’d fight for that — it’d be worth the 30 minutes or an hour I had to pour into it.

Do You Dave Ramsey? March 29, 2009 at 12:44 pm

Hey Kevin, this is great discussion and we’re on the same page at the end of the day… I personally have most of my bills set up as autopay and I tie that back to a budget every month.

As for businesses being run as cost centers… hmmm, that’s a big one and I don’t see that changing. Controls and accountability factors should be put into place and cost line items should be rationalized across units but this doesn’t happen as often as we’d like to thing.

I worked with a client that was rationalizing all of their external vendors – they had 1000s of them, many of which were performing similar functions but for different operating units. By simply shortening the vendor list by 20-30% they were able to save millions of dollars by getting better deals by becoming larger customers to the remaining vendors.

Another plant I spent time at was able reduce costs by grouping orders even when going to the same vendor…

Big business does allow for lower costs but there are ineffiencies in the proess too. Good companies flush these out – Walmart is a great example – but not all do…

I realize that this discussion carries us well off your original topic but my point is to be careful when looking for ways that companies are ‘out to get you’. 98 out of 100 times it’ll be incompetence or ignorance rather than malicious intent…. and most of this is the result of their own heft.

Thanks for the discussion and long live personal accountability!

Dave

TStrump March 30, 2009 at 10:46 pm

I prefer electronic billing but if you’re not careful, it’s easy to forget if you don’t see a piece of paper.
Most companies do offer an email reminder, though.
When I get my ebills, I immediately enter them into my software to remind me to pay them on time.

Kevin April 2, 2009 at 8:31 am

@DYDR?: Good companies do flush them out — but I think your 1,000s of vendors example points more toward not running is separate groups and more toward one central hub. Every business is different of course.

Incompetence or ignorance should be seen in nearly the same light as malicious intent. I’ll stop doing business with stupid businesses. 🙂

@TStrump: I do get e-mail reminders that my bill has come in, but I think the simple step of making me log in (maybe I’m at work, maybe I’m busy) can be a deterrent. I wish they would put the bill amount or bill summary in the e-mail.

Comments on this entry are closed.