Thanks to the Internet, paying monthly bills has become a heck of a lot easier.
And lest we forget, paying bills is one of the most important parts of personal banking. Many of us pay our bills monthly or every two months. Luckily, a pre-authorized debit – or bill pay – lets you automate the payment of utilities, taxes and other regular bills, saving you time and adding convenience.
You can set up pre-authorized bill payments from your personal banking account by talking to the bill payment consultant at your personal banking institution.
For example, you might want to use pre-authorized payments to pay for:
- Retirement plan contributions
- Insurance premiums
- Credit card payments
An automatic or pre-authorized payment doesn’t give the biller permission to withdraw money from your account. Instead, you arrange with your personal banking institution to make automatic payments from your account to the biller.
Setting Up a Pre-authorized Bill Payment
You need to fill out an agreement with your banking institution. This means you are giving your bank permission to withdraw money from your personal banking account. The money will then be sent to the company or institution you’re paying. Depending on the financial institution, you might be able to do this in writing, electronically or over the phone.
If you set up your agreement electronically or over the phone, get a written confirmation of the details of the agreement at least three days before the first withdrawal from your account. This allows you to make any corrections you might need.
Your personal banking institution might ask you for a blank check to confirm your account details when setting up the automated bill payments. Be sure to write “VOID” in ink across the front of the check and don’t sign it to protect against fraud.
What to Look for In Your Agreement
Before signing the pre-authorized payment agreement, check it carefully. It should show:
- The amount to be deducted from your account.
- The name of the biller, which reflects the company or organization that will receive the funds.
- The frequency of the arrangement and the date on which money will be taken out of your account.
Keep in mind, the amount might be fixed — in other words, it will stay the same every month —or variable, meaning it will be a different amount every month.
The biller should get your approval for every pre-authorized debit if one of the following things occurs:
- Your agreement does not define the frequency of payments.
- The frequency is variable — for example, if payments do not come out every month or can change from period to period.
You might need to give the biller a password or a secret code to approve the pre-authorized debit.
Canceling a Pre-authorized Debit Agreement
To cancel a pre-authorized debit agreement, first notify the biller in writing and keep a copy of the notification. Then, notify your personal banking institution.
Once you cancel the agreement, check your banking records to confirm that the pre-authorized payments have stopped. Contact the biller if they continue. If you’re not satisfied with their response, you have 90 days to seek reimbursement through your financial institution.
Canceling your pre-authorized debit agreement does not cancel your contract with the biller. It doesn’t cancel the amount you owe. You’ll have to make arrangements with the biller to pay any outstanding amounts you still owe.
Requesting a Stop Payment
If you need to cancel a single payment, you can request a “stop payment” from your financial institution. You might also be able to put a stop payment on recurring payments.
Check with your financial institution about how much time it needs to process a stop payment.
Tips for Pre-authorized Payments
- Read the terms and conditions carefully before signing the agreement.
- Keep a copy of the signed agreement or confirmation of the pre-authorized debit for your files.
- Inform any merchants or financial institutions with which you have pre-authorized debits if you change your banking information.
- Check your account regularly to make sure the withdrawals match what you pre-approved in your agreement.
- Inform your banking institution about any incorrect or unauthorized debits.