3 online bill pay pitfalls to avoid

By Doresa Banning

If you haven't plunged into the world of online bill pay through a checking account at your bank or credit union, you're missing out on savings and convenience.

By using the service, which is often free, you save the costs of stamps, envelopes and checks. If you pay 10 bills per month, you'd save $4.40 in stamps alone each month, for an annual savings on stamps of $52.80. While not enormous, that little savings tip could cover, perhaps, the cost of one month's phone bill.

All it takes online are some mouse clicks and a little bit of data entry. It's probably faster than writing checks, addressing envelopes and walking them to your mailbox.

While these online bill pay systems generally work smoothly, inherent in the process are some pitfalls that could ensnare you. But if you know upfront what they are and how to avoid them, your experiences should be carefree.

Online bill pay hazards and tips for avoiding them

Here are three common dangers with major consequences. If you fell victim to any, you'd likely miss a payment, which could be reported to the credit bureaus and ultimately lower your credit score. You'd also likely incur one or more late fees (defeating a big reason for using online bill pay to begin with) depending on when you discover and resolve the problem. Extricating yourself from the resulting administrative tangle would likely require multiple phone calls and navigating dreaded automated phone systems, which are both time-consuming and aggravating.

1. The perilous processing window

Your bank or credit union needs a certain amount of time to process payment to each vendor you owe, and it varies from vendor to vendor. It may need two days for your utility company and five days for American Express. Remember the processing window exists and take it into account when choosing a payment date, the day you want your financial institution to issue payment.

Also, know that processing days are weekdays only. So if you request that your bank make a payment on Wednesday and it needs five processing days, it won't send the money until Tuesday. Typically, the soonest a bank makes payments is the day after your request.

For example, your credit card payment is due on the 30th of the month (a Friday--see calendar below), and your bank needs five days to process the payment. You log on to set up the payment on the 28th, thinking you can have your bank issue the payment on the 29th. This won't work and it will get you in trouble. The latest you could request the payment is seven days beforehand (on the 23nd) because the five processing days wouldn't begin until Monday the 26th, since weekends aren't included.






















Setting up the payment on the 23rd is still cutting it too close because you want the vendor receiving the payment to have time to process it as well.

Tip: Don't wait too long to set up your payments. Allow plenty of time for processing of payments on both ends. Consider setting up payments immediately after receiving any bills.

2. The no-return-to-sender snag

If you send your online payment to an incorrect address, it likely will wind up floating endlessly in cyberspace and not be returned to your bank. In this case, you wouldn't even know until you got word you missed a payment. Sometimes vendors change their pay-to addresses without notifying you.

Tip: When you go to pay a vendor, verify that the address on the payment envelope matches the one you have online in your bill-pay setup.

3. The consolidated payments catch

Let's say you have two accounts with one vendor, an insurance company, for example, and therefore receive two bills. So, thinking you're being efficient, you request one payment be made to cover the amounts due on both accounts.

Unfortunately, the computer on the receiving end can't decipher two payments in one, and either posts it to only one of your accounts or "holds" it. A held payment sits in limbo until someone's investigation finds it. Again, you're unaware of this until you're informed you didn't pay.

Tip: Always request separate payments for multiple accounts with one vendor.