Automatic Bill Payment

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DEFINITION of 'Automatic Bill Payment'

Routine, automated payments made from a banking, brokerage or mutual fund account to vendors. The automated function can be initiated either with the source of funds (the bank with the checking account) or the vendor to whom payment is owed. Automatic bill payments occur over an electronic payment system, such as the Automated Clearing House (ACH).

INVESTOPEDIA EXPLAINS 'Automatic Bill Payment'

Regular, even payments (such as instalment loans) can be automated quite easily from the source of funds (such as a checking account.) This involves making arrangements with the bank holding the checking account to make the exact payment each month. The set of instructions is typically created online by the account holder.

More frequently, this power is given to the vendor (the electric company, for example) to charge the checking account for whatever amount is owed that particular month. If the vendor is not already familiar to the bank, the bank may ask the account holder to have the vendor pre-approved for this function. In most instances, however, it is the account holder who ultimately decides whether the automatic bill payment happens each month; he or she has the power to turn the automatic payment function off or to postpone the payment.

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