Difference Between Direct Billing & Automatic Withdrawal

Technology has changed the way bills are paid. More than half of all bills are now paid electronically, with the vast majority of those still paying by mail being senior citizens. Younger consumers choose to skip the checkbook and postage stamps, which might explain why the number of bill payers by U.S. mail dropped 20 percent between 2010 and 2016. However, there are some instances where customers have a business bill an account directly, known as direct billing. The term is widely used in reference to hotel stays and medical expenses, where businesses or insurance companies are "directly billed" the amount due. Automatic withdrawal, on the other hand, is simply the act of having funds automatically taken from your bank account to pay your own personal bills. They are both dramatically different.

If you've ever traveled for business, you may have experienced direct billing in action. Instead of paying the bill for your hotel stay, you may have the amount sent directly to your business's HR department, where the bill is paid using an account designated for those expenses. Instead of paying the cost of your stay out of pocket and asking for reimbursement later, this puts the transaction in the hands of your accounts payable team. Health-care providers also often directly bill insurance companies for patient expenses, freeing customers from the burden of asking their insurers to pay the bill.

At one time, consumers waited for their bills to arrive in the mail, at which point they'd write a check and put it back in the mail. Now more customers than ever are simply authorizing creditors to take the payment out automatically. To do this, you simply fill out a form that includes your routing number, account number and authorization to withdraw. You also may be asked to remit a deposit slip or voided check to allow the creditor to verify that the information is correct before sending the first payment request. About three-quarters of all online payments are made this way. Aside from paying your bills through the mail, another popular option is to simply go into your online banking app and make payments straight to the appropriate creditors.

Direct billing relieves you of having to serve as the middleman, letting the business that wants payment deal directly with the person who is able to issue it. It benefits you by saving you time and effort. It benefits the requester and the payer by speeding things up, rather than having to wait for you to submit information so that someone can remit payment. The downside is that sometimes it doesn't work, so you may have to intervene to ensure the payment is made.

Automatic withdrawal is one of the easiest ways to pay your bills. You simply “set it and forget it,” which is ideal for those instances when you’re traveling for weeks at a time. You don’t have to worry about missing a payment and possibly incurring late charges or hurting your credit. Thanks to online banking, you also can monitor your account to see when a particular payment comes out.