In this three-part series, we describe the primary methods a small business can use to pay its bills and examine the advantages and disadvantages of each

Part 3: Online/Electronically

By Christopher Freeburn

The rise of the Internet has created myriad opportunities for small businesses to save money and compete with their bigger competitors in almost every area of business operations. Paying bills is no different.

As Internet usage spiked among consumers and businesses over the last decade, online financial transactions exploded. Driven largely by consumer pressure, online banking-financial transactions conducted almost completely over the Internet-has become common. According to Jupiter Research, more than 50 million U.S. households and businesses use some form of online payment system to purchase goods or services or to manage checking accounts.

You can make online bill payments from any of several different kinds of accounts, including checking, credit card, and electronic accounts like PayPal. These accounts allow you to manage your overall account, as well as make payments with a few clicks of the mouse. One of the biggest benefits of these accounts is 24-hour access to your financial data. You can login at any time-and in an age of WiFi-equipped laptops and smart phones-from virtually anywhere and check your account balance, transfer funds between accounts, or pay a bill electronically. You can even take note of which payments have been credited to your account.

The number of businesses and utilities that accept some form of online payment has grown dramatically as consumers and businesses embrace the technology. "Convenience is one of the factors driving online bill payment," says Boston-based banking consultant Jim Sheridan. "It's a big plus for small business owners to be able to track payments and make changes to their accounts whenever they feel the need. You just can't do that with a traditional checking account."

Flexibility and savings
Another reason that many small business owners have chosen to use online payment systems is the flexibility they offer. Many online payment systems permit you to choose the method of payment, meaning that you can shift between paying with credit cards, bank accounts, or other electronic accounts (like PayPal). This permits small businesses to select the right payment option to best manage the business's cash flow when paying a bill.

Online bill payment systems can also be configured to function automatically, charging a periodic bill to a specific bank, credit card, or electronic account at specified intervals or on certain dates. This feature frees the small business owner from the task of having to remember the upcoming bill, write a check, and mail it, thus conserving the business owner's time and eliminating the risk that the bill will be forgotten, or the payment lost in the mail. "The ability to automatically pay monthly bills is a great feature," says Sheridan. "It takes one more task off the business owner's plate and makes sure the business is never hit with fees or penalties for late or missed payments." Additionally, online payments are generally free, thus eliminating the postal costs of mailing payments. With postal costs rising sharply, this is a savings that can add up over time.

Easy to start
As more and more companies have adopted online payment systems, it has become a lot easier to get started. Virtually every bank now offers an online account system that allows you to access your checking and saving accounts, and keep track of account activity. "Online account access is something that banks are increasingly encouraging their customers to adopt," says Sheridan. "Most online account systems are relatively simple to use, and most banks are looking to steer their customers away from paper checks, which are costly for the bank to process, and toward cheaper, electronic payment systems." Credit card companies have adopted online account management as well, permitting small business owners to access their business credit card statements online with ease. For small businesses that have distributed credit cards to their trusted employees, online access permits the business owner to check the charges made on individual cards, as well as the overall account information, at any time.

Many utilities and most major companies-office supply vendors, retailers, and insurance providers, for example-will allow you to pay bills via electronic checks. Typically, this means creating an online account with the company in question and providing certain financial information: the name of the bank from which you wish to draw funds, the number of the account, and the routing number that appears on your checks. The online bill payment system then uses this information to withdraw the funds directly from your account. Alternately, most of these systems also permit payment via credit cards or other electronic accounts.

Security concerns
Small business owners who refrain from using online bill payment methods usually cite fears regarding the security of their accounts online as a reason for not participating. While hacking remains something of a concern, most of these accounts are password protected and very secure. Companies that maintain online payment systems have invested a considerable amount of time and money to put significant security measures in place designed to thwart hackers and identity thieves.

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