I use bill pay to pay many of my bills. I noticed that the bank debits my checking account for all the bills on the same date. I wondered what was going on and how all the companies could be cashing their checks on the same day, so I tested the system. I used bill pay and sent a $20 check to my sister. My sister received the check on the 19th and the bank debited my account on the 19th, but my sister has not cashed the check.
This happens only with accounts that are not electronically sent. The accounts that are sent a check are debited on the estimated date of arrival as opposed to the actual date of cashing. Why is the bank doing this? If my sister never cashes the check, where does the money go? Is this legal? I got an overdraft charge because they are debiting the account without the payee actually cashing the check.
There are a number of different methods that bill payment systems use. You need to find out which method your system uses.
In one method, the bill payment system pays electronically. This requires a lot of up front work by the bill payment system to contract with the biller/payee, arrange payment routing details, and provide the payee with payment detail information for internal crediting of its customers' accounts. Typically, the bill payer's account is charged one business day prior to the day the receiving payee gets credit. In some systems, the charge and credit are posted on the same business day.
In a second method, the bill payment system creates paper checks drawn on the customer's checking account (your account, for example) and mails them. With this method, one could assume that funds would not be removed from the customer's account until the paper check is delivered, deposited, and paid at the customer's bank.
In a third method, the bill payment system also prepares checks, but they are drawn against a separate checking account either at the customer's bank or at the bill payment provider's bank (we'll call that the "central bill payment account"). Funds are transferred electronically from the bill payment customer's account to the central bill payment account, usually when the check is issued.
In some systems, the payment will not be generated if the bill payer's account is overdrawn on the day it's due to be issued. Some will overdraw the account and trigger an overdraft fee or fees. Others will re-try one or more times (with our without a fee).
In none of these scenarios does the bill payment company have control over when the receiving payee credits its internal account records (if applicable). Whenever a bill payment system uses electronic payments, it always needs one of the paper check methods as a backup to pay persons (companies, individuals) who can't or won't accept electronic payments.
As you can see, the combinations of methods and practices can be complex. Get information from your bill payment company or bank that gives you detailed information on its procedures and fee structure.
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There are a number of different methods that bill payment systems use. You need to find out which method your system uses.