What is automatic billing?

How does automatic billing work?

Automatic billing is a method of scheduled payment via electronic funds transfer (EFT), usually as part of an ongoing contract or payment plan. Many merchants and service suppliers may offer the option to pay bills automatically.

Though automatic payment is generally safe and widely used, it’s worth considering the authenticity of any merchant before making an agreement to hand over sensitive financial and personal information that may be requested during the process of setting up direct debit.

Recurring payments and subscription services

Recurring payments and subscription services are two forms of automatic billing.

For recurring payments, an individual may sign up with a vendor and then authorise them to store their payment information and collect the bill amount from the linked funding instrument (such as a debit card, credit card, or bank account) at ongoing intervals, even if the amount changes each time. This is commonly associated with utilities, phone bills, and rate payments.

Automated subscription payments function similarly, but the bill is usually for the same amount each time. There may be a reduced-price trial period offered when someone first signs up for a subscription service (such as music or digital entertainment streaming services), or different service features that can be opted into or downgraded after signing up. There may also be contractual conditions which only allow for cancellation after a period of time, or within a certain window.

Potential benefits of automatic billing

Potential benefits of automatic billing may include:

• Avoiding late payments. Automatic payment may help prevent lapsing on due dates and accruing potential late fees.
• Reducing administration. Setting up autopay to manage bills may help an individual avoid manual admin.
• Convenience. It’s usually easy to set up direct debit online or over the phone.
• Flexible payment options. People can usually choose where their money is debited from.

Addressing common concerns and issues

Potential risks of automatic billing may include:

• Payment information expiration. Transactions may bounce if account or card details change.
• Overdraft. Not having sufficient funds in the linked account may lead to a missed payment or the account going into arrears.
• Potential errors and inaccuracies. Though usually smooth, automation is not always as deliberate and accurate as a manual transaction.
• Losing track. It’s possible to lose track of subscriptions and payments over time, meaning an individual could be paying for services they no longer use.

Automatic billing and security

When set up through a verified, trusted merchant, automatic billing is generally considered a safe method of paying bills. However, it’s essential that people stay on top of their automated payments and make sure the right amount is being deducted at the right time. Setting up notifications on a device is one way to keep tabs on payments and stay secure.

Learn more about paying bills and managing balances.