Autopay holds a host of benefits for individual consumers and businesses alike. It streamlines finances and reduces late payments and penalties while propping up your credit scores as time goes by. This system, however, does come with certain downsides, especially during periods of acute financial stress, when automatic payments can further exacerbate the situation.
Since it first arrived, autopay has been instrumental in driving efficiencies and reducing wastage in financial services and other sectors. As a result, businesses have more certainty regarding payments, with little friction and instances of non-payment in between. As a result, they go above and beyond when enrolling customers in their autopay solutions.
It includes pronounced incentives such as a 0.25% reduction in interest rates for those who enroll on autopay for their student loans, and substantial benefits in store regarding credit scores, for consumers who pay on time every time, among other things.
As a result, 61% of Americans now have at least one bill automatically set to pay each month, with millions more joining in on the trend.
The Core Premise of Autopay
The core premise of Autopay remains as robust as ever. However, there are some cons and drawbacks that consumers have increasingly realized.
Even though they aren’t significant enough to outweigh the remarkable benefits, they can still pose questions.
To get the most out of your auto-pay program, we suggest starting at least two weeks before a bill is due or any other date when you need to make an automatic payment so that you have enough time for any issues that might arise during setup (i.e., ensuring all your bank account information is correct).
If you wait until the last minute, you risk not having enough time to resolve any errors that may occur before it’s too late!
Also, make sure to notify any vendor or company whose services you regularly use so that they know when your payments will be coming in so that they can plan accordingly themselves – this way, everyone will be happy!
Pros of AutoPay For Consumers & Businesses
Any system that manages to garner millions of users and change the nature of commerce likely has strength in the pros column.
Most people today don’t know how much time and effort it used to take when paying bills. From checks to signs to buying stamps to stick on an envelope to mail the payment, people in the recent past spent much of their lives tracking and paying bills.
AutoPay enables a remarkable level of efficiency, such that you barely even notice the bills or pay any attention to them. But, of course, this comes with its drawbacks, but more on that later.
No Late Payments
Missing or delayed payments and the fees, penalties, and additional charges associated with them are a thing of the past.
If you have the money with autopay, there is no reason to miss a payment, bringing down the high costs of such penalties for average consumers.
Build Credit Scores
The positive side-effect of paying off your bills on time is that it continues to build your credit scores, setting you up as a model for fiscal prudence and financial responsibility.
Even individuals dealing with poor credit scores can see stellar improvements within just a few months of on-time autopay-based payments.
Speaking of credit scores, they even matter for businesses when borrowing or raising equity capital for expansion. A credit score is a metric representing creditworthiness, trust, and reliability, making it crucial for fundraising.
Beyond the convenience that autopay has added to consumers’ lives, it has added substantially more value to merchants, banks, and financial institutions. By helping them improve their liquidity profiles while reducing the need for overheads involved in following up on payments.
As a result, businesses have gone above and beyond to get customers to set up autopay with their billing systems, offering plenty of discounts, bonuses, and promos for doing the same.
Consumers who enroll in autopay can receive a host of benefits that can help them save a great deal of money in the long run.
Cons of AutoPay That Consumers Need To Be Aware
Like in any system, users must be aware of drawbacks, misuse, bad actors, and swindles.
Lose Track of Finances
A common complaint among people who’ve long used autopay is that losing track of your expenses is easy.
In the past, the manual tracking of bills before mailing a signed check gave a clear overview of individual finances. Still, with bills getting auto-deducted, with no human interference whatsoever, consumers will likely only see any excess spending when it is too late.
Without proper oversight, even overlooking a mere expiration date on a credit card can derail your financial standing, resulting in penalties and affecting your credit scores.
Risk of Overdrawing
Automation can sometimes lead to your account running out of funds and overdrawn without your consent. Overdraft fees can be pretty expensive and likely harm your credit scores considerably.
Overdraft fees vary depending on the bank and account type. But they are pretty significant and something that can undo all of the savings and gains made via using autopay in the first place.
Abuse By Merchants
A significant concern while using autopay, especially in recent months, is abuse by merchants who often make it impossible to cancel a subscription. According to certain studies, nearly a third of Americans currently pay for at least one autopay subscription without knowing it or even using the service.
Even millennials and Gen X’ers get duped into signing up for subscriptions. They don’t need it and realize they must cancel it only after receiving their credit card bill. However, there are apps and services to solve this problem — managing recurring subscriptions.
Tracking & Loss of Privacy
Tracking cookies and intrusive advertising have become increasingly ubiquitous online. An automatic bill payment system represents another avenue to learn more about users. Use the data to show ads from either competing services or related products.
How and how much you spend on various goods and services is valuable information for a digital marketer or advertiser. Nevertheless, institutions will find ways to extract as much from this data as possible as they face more profound intrusions.
When Is It The Best Time To Start AutoPaying Vendors?
Keeping the pros mentioned above and cons in mind, a few essential considerations exist before deciding to kickstart autopayments for vendors and merchants.
A strong liquidity profile is pertinent for a hands-off approach to payables management, without which it has to remain under the purview of an executive to avoid any cash issues cropping up.
Liquidity goes beyond just cash and focuses on short-term liquid assets and liabilities falling due in the short term. Both go into consideration when planning for automated payments.
Unless the vendor has been around for quite some time and has built a reputation for delivering quality products and services per requirements, payables must be released only after thoroughly evaluating the deliverables.
Cash Discounts, Promos & More
Cashflow is the lifeblood of most businesses. Merchants and vendors offer extensive cash discounts to settle payables quickly within a stipulated time frame.
The availability of such offers makes autopay a great option to make the most of the discounts and reduce costs.
These are undeniably exciting times in the fintech and payments niche, with plenty of new technological innovations coming forward.
Many of the drawbacks mentioned in this article are unlikely to be relevant in a few years. The benefits of this system far outweigh the disadvantages. So it may not be worth it if you’re still reluctant to configure autopay at your checkout.