By Is it Safe to Automate Payments?
Auto-payments are a smart move because they save time, avoid costly mistakes and help you stay on top of your payment due dates. They also prevent you from getting hit with late fees and potential negative information on your credit report.
However, recurring payments come with risks. Here are five ways they might not always work for you:.
Security
Digital payment security is a vital part of business operations. It keeps data safe from hackers and other malicious actors who can use information to steal money, goods, or personal details. With digital payment systems becoming more prevalent, there is increased pressure for businesses to put in place the necessary security measures.
While there are many ways to protect business payments, one of the most important is ensuring that all parties involved in a transaction have their best interests at heart. This includes making sure that customers and vendors aren’t being scammed. There are various methods of payment security, including tokenization, which replaces sensitive information with a unique string of characters that can’t be tied to an individual customer.
Another way to ensure the safety of business payments is to implement an automate payments system. This makes it easier for businesses to get paid and allows them to spend time on other tasks. It also eliminates the risk of error, which can lead to costly mistakes and lost revenue.
Payment automation helps to reduce fraud by reducing the number of paper checks processed and by using invoice matching to only pay invoices that align with purchase orders. In addition, it provides internal stakeholders and suppliers with real-time 24/7 transparency through a secure online portal. Ultimately, this improves communication between departments and can help to create a more cohesive team.
Overdraft risk
Overdraft fees are something that regulators fixate on, and they’re one of the downsides to automating payments. In addition, it’s not uncommon for companies to make mistakes when processing automatic payments. Those errors can be costly, both to the bank and its customers.
In some cases, companies will withdraw the wrong amount or even fail to withdraw a payment altogether. When that happens, the bank or credit union is responsible for paying back any money that was overdrawn. It’s important to keep an eye on your account to ensure that the right amounts are being withdrawn each month and that no unauthorized payments have been made.
Many community financial institutions have overdraft protection programs, which provide a source of funds in the event that a check or transaction is presented for payment and the underlying account balance is insufficient. Overdraft protection is typically available when a checking account is linked to a savings, another checking or other types of accounts that will allow transfers and transactions to be paid if the underlying checking account has insufficient funds. Ad hoc overdraft practices that involve the exercise of individual bank employee judgment as an accommodation based on specific considerations and knowledge of a particular customer do not generally raise reputational or compliance risk to the same degree as automated overdraft payment programs. However, institutions should monitor these ad hoc overdraft payment practices and review them to ensure that the resulting consumer contact efforts meet regulatory expectations for meaningful and effective follow-up with chronic or excessive overdraft users.
Convenience
With automated debit payments, you allow the payee to withdraw funds from your bank account on a recurring basis. This is especially common for credit card bills, but some companies use this option for other services, too, including gym memberships, curated subscription boxes, newspapers and gated digital content. Automatic payments can help you avoid credit score damage from late payments if they’re timed to arrive before your bill’s due date and around the same day or week that you know you have enough money in your checking account to cover the transaction.
If you’re a freelancer or work on an inconsistent schedule, however, this may not be the case, and one missed payment could result in overdraft fees that you don’t want to deal with. For this reason, it’s important to keep an eye on your bank account balance and set up banking alerts to ensure that you’re never in danger of triggering overdraft protection or paying excessive fees.
The word convenience has a lot of different meanings, from a place that sells items you might need for your commute to a service that provides a way to get the latest gadget without leaving your house. For many of us, the most obvious meaning is that convenience makes things easier, and that’s certainly true when it comes to paying for bills or subscriptions online. But, as Free Spirits and Nerds alike, we shouldn’t be too quick to assume that automatic online bill pay is safe.