5 Ways to Be Prepared for Automatic Payments
Whether in business or in our personal lives, most of us have expenses that can sometimes be hard to manage. Setting up automatic payments is a great way to ensure personal and business payments don’t slip through the cracks. Automatic payments (also referred to as automatic pulls, debits or automatic bill pay) refers to the process of having a specific amount of money that is automatically withdrawn from your bank account and sent to another bank account to cover monthly expenses.
Automated payments make accounting and business operations more efficient and free up time for you and your employees to concentrate your attention on more important tasks. Below are just a few of the many advantages of setting up automatic payments.
Automated Payment Advantages
Convenience – Convenience is the number one advantage of automatic payments. This process alleviates the stress and hassle of keeping track of payment due dates, late or lost payments.
Rewards – Depending on the vendor, some companies will provide rewards, such as cash back rewards or discounts, to customers who set up automatic payments.
Credit Score – Personal and business credit scores are affected by payments. Setting up automatic payments ensures payments are received on time, which helps you improve your credit rating.
Environment Benefits – Going paperless allows you to go green by eliminating the use of paper and stamps.
While innovation has made life and business easier, there can be drawbacks and disadvantages to having automatic payments withdrawn from your bank account. Here are a few examples.
Automated Payment Disadvantages
Costs – Although making arrangements with your bank, alternative lender or vendor may save you time and money in the long run, some financial institutions and/or vendors may charge an initial or recurring fee.
Organization – The flip side of having the convenience of automatic withdrawals to cover expenses is that you have to be fiscally responsible and remember that the payments are being debited.
Overdraft Fees – Make sure you have enough money in your account to cover the debits. If not, you will incur expensive overdraft fees and negatively affect your personal or business credit in the long term. In some cases if you do not have enough money to cover the payment, your financial institution will cover your payments, which can be very costly to you.
After you initiate automatic payments, the last thing you want to do is forget about them. Here are five ways you can prepare for your upcoming payments.
Tips to Help You Manage Your Upcoming Automatic Payments
- Understand Gray Charges – Stay abreast of all fees associated with the automatic withdrawals that you have set up. Some vendors charge an annual renewal fee, which is considered a gray charge.
- Keep a Schedule of Automatic Payments – If you are a business owner and have initiated automatic payments to cover business expenses, you should have some sort of system in place. There are different options available to help you keep track of your automatic payment schedule. There are mobile apps, such as Mint Bill, which monitors your bank account transactions. The app will notify you when funds are due.
- Keep a Cushion – Fiscal responsibility dictates good financial accounting practices. But it also makes sense to keep a cash cushion (also known as a bank account buffer) available just in case you forget that a payment is going to be withdrawn. According to MoneyUnder30.com you should keep a bank buffer of $500 to $1,000 in your personal bank account.
- Expense Tracking System – Similar to creating schedules of payments, there are a ton of cloud accounting software systems that allow you stay on top of automatic payments. For example, many small businesses use intuit QuickBooks to track outgoing payments.
- Additional Bank Account – Set up a separate bank account to cover fixed costs that are automatically debited. To make this a viable solution, you will have to set up transfers from your main bank account into this account.
Always Audit Your Statements
While automated payments can free up your time and eliminate late payment fees, you have to diligently review your financial statements on a consistent basis. How have you been able to effectively manage your business’ automatic payments? Leave a comment below.