Automatic Bill Payments: What it is, how it works, and its benefits

What are automatic bill payments?

Automatic bill payments, sometimes called auto pay or recurring payments, are scheduled transactions that automatically transfer funds from a business’s bank account to a vendor to cover recurring expenses like utilities, rent, subscriptions, or loans.

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Once authorized, funds transfer directly from a bank account to the vendor on a scheduled due date. These payments often use the Automated Clearing House (ACH) network, a secure, electronic transfer method that allows for reliable transactions without needing physical checks.

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Take managing vendor invoices, for example. Manually processing bills can quickly require up to 15 minutes per bill, but imagine you have 20 bills to pay at the end of every month: that’s 300 minutes or 5 hours solely devoted to processing invoices and paying bills. Not only is this unsustainable, but it can also cost many hours of productivity and, ultimately, money.

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That's where automatic bill payments come in.

How automatic bill payments work

With automated online bill pay, you simply upload a vendor invoice, and AI quickly generates a bill with line items and payment details, leaving you only to review, approve, and schedule automatic payments in seconds.

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When done manually, the typical process is quite lengthy, which would require several hours of a person’s dedicated time:

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That’s why implementing automatic bill payments helps businesses manage these consistent expenses. They allow for timely payments without needing to process each one manually.

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Alternatively, autopay allows you to set up a bill with your payment details and reliably pay monthly bills on time. This saves you time and gives you the peace of mind that your bills are getting paid when they should be.

Are automatic debit payments different?

There is a subtle difference between automatic bill payments and automatic debit payments, but they are used interchangeably. The difference is that with an automatic bill payment, the customer controls the timing and amount through their bank, while with an automatic debit payment, the vendor initiates the withdrawal based on the customer’s authorization.

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Automatic debit payments are simply one method a vendor might use to collect a scheduled payment. What matters most is choosing the setup method (bank, vendor, or credit card) that best suits your needs when using automatic payments.

Which bills should use autopay?

Automatic payments can provide many benefits for businesses. But just because they’re a good solution doesn’t mean they’re a one-size-fits-all fix, especially when it comes to specific types of bills.

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For example, you may want to consider putting expenses like SaaS software, credit card bills, or anything that tends to have a fixed cost per month on autopay using a corporate card like Ramp.

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On the other hand, expenses that can vary monthly, like utility bills, mortgages, or vendors, should be reviewed before payment. This is because these bills tend to fluctuate. If they jump significantly month to month, you’ll want to have an opportunity to review why.

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So when deciding whether to add something to autopay, consider if it’s a constant, relatively predictable expense with a fixed cost or one that varies monthly.

Setting up automatic bill payments

Automatic bill payments authorize a bank, vendor, or payment service to perform regular transfers based on a set schedule. The setup process for auto pay varies, depending on whether it's done through a bank account, directly with a vendor, or with a credit card.

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So, following more detailed step-by-step setup instructions for automatic payments may be needed. In general, the process can look like the following:

• Bank setup: Login to your bank’s online portal, locate the bill payment section, add the vendor’s details along with the payment amount and schedule, and authorize the bank to initiate the payments automatically from your checking account.
• Vendor setup: Access the vendor’s billing portal, add the vendor as a payee, enter your bank account information, such as your account number, and authorize the vendor to withdraw funds on the agreed-upon schedule.
• Credit card: Some vendors offer the option to set up autopay via credit card. In this case, you can authorize the vendor to charge your credit card directly, providing flexibility in managing recurring payments without relying on bank account transfers.

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ACH transfers, which are typically used for automatic bill payments, generally take 1–3 business days to process, depending on the bank and vendor involved.

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For businesses, many banks and payment platforms offer software that centralizes multiple automatic payments, giving finance teams a comprehensive view of cash flow and simplifying the management of recurring expenses.

Benefits of automatic bill payments

Automatic bill payments offer a number of advantages like avoiding late fees and more:

• Time efficiency: Accounts payable professionals, based on research from IFOL, show that they spent 56% of their week manually processing invoices. With automatic payments, your AP team can save time by reducing the need for manual interventions.
• Avoidance of late fees: Auto pay minimizes the risk of missed payment dates, helping businesses make on-time payments to maintain a strong payment history, which supports a healthy credit score.
• Improved financial management: Businesses benefit from reliable cash flow and efficient financial oversight, as automatic payments provide a consistent payment cadence.
• Increased security: Many automatic bill payment systems provide advanced security measures, including data encryption, multi-factor authentication, and the identification of fraudulent charges, to reduce the risk of unauthorized access or fraudulent activity.

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Automatic payments are generally more efficient than manual processing, offering businesses a streamlined approach to managing recurring expenses.

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Best practices for using automatic payments for your business

For businesses of all sizes, automatic bill payments can be like a lifeline–saving precious time and resources. But like any other system, there are some best practices to remember when using them, to not face drawbacks. 

Regularly audit your bill payments

Just because your bills are being automated doesn’t mean that you shouldn’t check in on recurring expenses to make sure everything looks accurate. You should plan on auditing both your fixed and variable-cost bill payments frequently to look for any errors, redundancies, and more–particularly if you’re using autopay.

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With variable expenses, the reason is clear: you want to make sure you don’t end up getting charged more than what you bargained for. With fixed costs, you’ll want to regularly check in to make sure that a bill hasn’t suddenly increased without your knowledge.

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Auditing periodically can help you avoid overdraft fees if you're unaware of potential insufficient funds. If needed, pause or cancel an automatic bill payment by logging into your bank or vendor’s portal and following their cancellation steps.

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Ramp Bill Pay will automatically check for variable and fixed-cost bills, such as vendors, to see if you’ve accidentally paid a bill twice and look for duplicate spending across categories, giving you a good idea of your finances.

Use tools that offer real-time visibility of your expenses

Just like doing regular audits of your bill payments can give you better insight into your finances, having real-time visibility into your expenses can help you tenfold. When looking for expense management software, be sure to look for one that offers real-time, up-to-the-minute tracking so that you have a clear understanding of your financial picture.

Take security considerations into account

Security is essential for maintaining automatic payments. Here are a few key practices:

• Select trusted vendors: Use secure, well-known platforms for auto-pay setup.
• Monitor accounts regularly: Regularly review transactions to identify any unauthorized charges.
• Keep details updated: Make sure bank account information is current, particularly after changing bank details, to avoid disruptions in payment.

Use a secure virtual card

Today, you can never be too secure. If you want to add an extra layer of security to autopay, be sure to use a virtual card. With Ramp, you can create an unlimited number of virtual cards to pay your bills. Even better, you have total control over how these cards are spent.

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You can set up merchant restrictions so that cards are spent appropriately, issue funds to protect you from erroneously overcharged bills, and set usage and frequency limits. All of these controls ensure that if you set up a virtual card for a specific purpose and amount it will never be charged outside of the parameters you set.

Make automated payments and approvals easier with Ramp

Managing bills can be a major hassle for businesses, but with Ramp’s corporate card and bill pay software, Ramp allows you to automate bill entries, approvals, and payments while providing robust financial controls that Finance and Accounting teams love.

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Let Ramp do the work. Use Ramp Bill Pay to reduce manual tasks, consolidate payments, and handle 10x the invoices with the same headcount.