Are you paying your bills online or are you still using your checkbook and stamps?
Here is a money-saving idea that will also help you manage your available cash … pay your bills online.
And I’m not just talking about the automatic payments banks and other lenders are forcing upon you when you take out a loan and I’m also not talking about going to your credit card company’s website to pay your bills when you forget to get it in the mail on time. No, I’m talking about signing up for and using the bill pay system most banks, savings and loans, and credit unions offer (I’m going to collective call these financial institutions “banks”).
The most popular bill pay system is one from Checkfree. You, as the user, are probably unaware of the company behind your bank’s outward facing customer system, but the typical bill pay system is not one proprietary to your “bank” but a safe, secure system developed and marketed by Checkfree or one of its competitors.
Bill pay allows you to customize a list of bills in a database that is accessed through a multi-factor authentication method, typically through an initial access to your bank’s system. Using Checkfree and companies like Checkfree allows the bank to aggregate all of its payments to a single recipient. Checkfree acts like a trustee and aggregates your payments to the local utility company, for example, along with thousands of other customer payments to the same company. The utility is happy because it gets quick access to its cash, instead of having to process thousands of individual checks. There is less manpower and the utility in this example doesn’t need to mess with overdrafts and re-deposits. The payment is not typically made from your account if you haven’t sufficient funds, unless you have overdraft. Companies like Checkfree use the Automated Clearing House payment system (ACH) to send large payment files for common vendors like utilities, with payment information embedded in the file so that the receiving company can post the payments to the proper accounts. This is very efficient for the recipient.
Bill pay allows you to set up payments to many different entities, even individuals. Where there is not an ability for a company like Checkfree to aggregate payments, it cuts a check to the payee on your behalf, and eats the cost of the postage. Think of the huge savings to you in just cutting out $4-5 or more in postage per month. That savings can get you a grande latte as a monthly treat.
Bill pay systems also allow you to manage your funds. You can pre-date a payment that is coming due out into the future. Now, be careful. I would certainly deduct any payment, even a future-dated payment, from your current balance because it can get tricky to manage the inflow of your paycheck and time that Discover bill exactly right, but it does allow you to maximize your balances for purposes of earning even a little bit of interest each month. And do be careful of cutting the payment date you input too close to the due date of your bill. Any savings you get in postage can easily be eaten-up by a late charge. I recommend paying the bill about 2-3 days in advance of the due date when the biller is a large, multinational firm or a big utility and about 5 days in advance otherwise, unless there is no late fee.
Also, use the memo field that the bill pay systems typically offer to enter an account number, even if one is embedded in the billing file. I have experienced problems getting payments booked to the correct account, particularly where you may have multiple account numbers with the same biller. For example, you might have 2 credit cards, both issued by Chase (and Chase has never made a mistake on posting my payments – this is just an example). I think entering the account number forces you to get the input correct as well.
I will talk in a few weeks about the benefits of paying even a little extra on your mortgage each month, but this is a good use of the memo field as well. If you are like me and round the payment up to the next dollar or next multiple of 5 or 10 dollars, it is useful to tell the mortgage servicer to post the additional dolars and some cents to principal (not to your escrow).
Bill pay systems also offer a great, online method of obtaining cancelled checks and for verifying a payment has been made and processed by the biller. Within the Checkfree system, there is a method for getting a copy of the front and back of a paid check and there is a method of requesting a “trace” on a payment, particularly when it is a check Checkfree cut that has not cleared your account.
Another caution – particularly for billers that cannot easily be aggregated by Checkfree (like a local daycare or an individual), the system may require that you put in your payment request several days – even up to 5 working days – in advance of the payment date. So, do not wait until the last minute to process your bills. My suggestion is to set up 2, even 3 days per month that are dedicated to paying bills. I would also suggest setting up a sorting system, perhaps a table-top in-box with 2-3 bins so that you can take your mail, sort it for the next date you will pay bills, and then easily fetch all of the items when you sit down to process your payments. There are fancy, daily tickler files out there, but I think some recycled in-boxes you might get from an old office set at work or something you might create out of an old shoe box, covered with some contact paper, would suffice. The most important thing is to be prepared when you sit down.
The possibilities of a bill pay system can also provide you a way to “pay yourself first”. If you need the discipline to save money each month, you can set up a biller and send a set amount of money to a savings account or to a 529 account each month. Your bank site might also include an account-to-account transfer if you have both a checking and savings relationship with the same bank.
And yes, the first time you set up a new biller in the system does take time.
The Checkfree system also has a “reminder” feature where you can set up an email alert or multiple alerts. This is particularly useful for those bills that are easy to forget – the dance studio where my daughter dances is often a bill I forget to pay because they don’t send me an invoice. I set up an email alert to email me several days before the payment is due so that I can remember to pay it on time.
Finally, Checkfree has a nice log within its system that tells you bills recently paid and displays a queue of bills you have requested to be paid and the date. You can make certain at any time that you have sufficient funds in your account and know that a bill you have set up to be paid has, in fact, processed.
Most “banks” offer bill pay as a free feature. Also, make sure that if your “bank” offers bill pay for free, there isn’t some sort of monthly maintenance charge elsewhere for your account. If your “bank” charges for bill pay and/or charges monthly fees, check out your local credit union. I don’t know of a credit union out there that charges for bill pay and typically a credit union “share draft” account (a credit union term for a checking account) is free and membership in a credit union is typically no more than a 1-time $5 fee.
So, take a hard look at setting up bill pay for your account.