Try to wrap your mind around these numbers: At last count, U.S. consumers were paying 14.7 billion bills a year, amounting to almost $4 trillion in annual bill payments. If those stats make your heart beat a little bit faster, you’re not alone. Six out of every 10 Americans reported feeling some degree of anxiety about shelling out money for bills, and rightly so, since even minor unexpected expenses can send many families for a tailspin.
The truth is that while there is some great technology out there dedicated to making the process easier, faster, and more secure, the terminology used on invoices and monthly statements can be confusing at best. “Every day we receive questions from our users confused about bill pay terms,” says Braidee Leon, Payment and Support Team Manager for Prism, a bill pay app. “As if paying bills wasn’t stressful enough, many folks are completely sidelined by bill-payese.”
Look, we’re not kidding ourselves that people are ever going to get particularly jazzed about paying bills. But we’re hoping we can ease the fear factor a bit by offering simplified definitions for the most popular bill pay terms, which you’ll find below. Have additions or other feedback? Drop us a line via our social feeds — LinkedIn, Facebook, and Twitter — and we’ll be sure to update the list regularly.
You asked, we answered: Defining common bill pay terms
Interest Rate
You’ve got to pay to play! Your interest rate is basically what it will cost you to borrow money, normally formulated as a percentage rate of the total amount loaned. Keep in mind that the interest rate doesn’t include fees or any other charges you may have to cover as part of the loan. For that, see “APR” below. Click here for more info.
APR
APR stands for annual percentage rate. Keep this number front and center, because it’s a more complete description of the price of getting a loan than the interest rate. The APR reflects the interest rate plus any points, fees, or other charges that you pay to secure the loan. Therefore, it’s usually higher than the stated interest rate. Click here for more info.
eBill
Great for both the environment and those that get the bill-fear shakes when they head outside to the mailbox, an eBill is an electronic version of a paper bill or statement that is viewable and payable online via a website or mobile app. Once you’ve signed up to receive an eBill, you can turn off your paper notification and streamline your bill paying routine. Click here for more info.
ACH
ACH stands for Automated Clearing House, an electronic funds-transfer system based in the United States. Often referred to as “direct payments,” they allow for the transfer of money from one bank account to another without the use of paper checks, wire transfers, credit card networks, or cash. Mind-blowing fact: The value of ACH payments in 2019 was $55.8 trillion, according to Digital Transactions. Click here for more info.
Real Time Payments (RTP)
Real-time payments are instant, electronic funds transfers that can be sent, reconciled, and confirmed in (you guessed it) real time, 24 hours a day, 7 days a week. They will not, as of this writing, fold your laundry. Click here for more info.
eCheck
An eCheck is an electronic version of a paper check that can be sent and processed much more quickly than a traditional check. With an eCheck, money passes through the ACH network (see above). The funds are electronically transferred from the payers' checking account and then directly deposited to the payees’ account, easy peasy lemon-squeezy. Click here for more info.
Deferred Payment on a Loan
A deferred loan payment is an arrangement in which loan payments are delayed until a specific time in the future. They are often applied at the outset of a new loan and sometimes offered during a financial hardship situation. Keep in mind that your responsibility for the deferred payments does not (POOF!) go away during this period; the loan is simply extended. Some lenders offer interest-free loan deferment while others continue to charge interest on the loan while payments are paused. Click here for more info.
Default
Default is the failure to repay a debt on a loan. Borrowers can be in default when they’re unable to make payments on time, start missing payments, or stop making payments altogether. In case the root word “fault” wasn’t an indicator, being in default can have a host of consequences, including negatively impacting consumers’ credit scores. Click here for more info.
Automatic Bill Payment
An automatic bill payment is a recurring payment or transfer of funds from your credit card or bank account to a biller at a specific time each month. Many consumers opt to take advantage of automatic bill payments because doing so greatly lessens the risk of forgetting to pay bills on time. Others are just like my Aunt Janice — organized, organized, organized! Click here for more info.
Remit Payment
To remit payment means to send or transfer money to another party in recognition of funds owed, often within a certain period of time. Here’s a mnemonic device: Remit spelled backward is timer (insert creepy bill pay tick tock sound here). Click here for more info.
Lockbox
A lockbox is a post office box — operated by a bank — that receives bill payments for a business. A customer simply sends their bill payment to the P.O. box and voilà! The bank collects the payment, deposits the funds directly into the company’s bank account, and updates the biller about the transaction. Click here for more info.
P2P Payment
P2P, or “Peer-to-Peer" payment systems enable consumers to send money to each other electronically — like for that $20 your sister spotted you when you “forgot your wallet” — via their mobile devices through linked credit cards or bank accounts. Popular P2P payment services include Venmo, PayPal, and Zelle. Click here for more info.
Online Bill Pay
Want to kick paper checks to the curb? Online bill pay is a secure service that enables people to pay bills electronically. Typically, an online bill pay platform is linked to the users’ bank accounts, from which funds are withdrawn on a one-time-only or recurring basis. Online bill payment can be offered by billers, banks, or by independent bill-pay apps like Prism. Click here for more info.
EMT
In this scenario, an EMT is not an individual popping out of the back of an ambulance, but rather an email money transfer. EMTs enable consumers to send money between their personal accounts, leveraging email and their online banking service. Click here for more info.
PIA
Payment in advance, or PIA for short, applies when full payment is expected to be made for a product or service in advance of its delivery, typically when an order is placed. Let the anticipation begin! Click here for more info.
eWallet
An eWallet, also called a digital wallet, is an electronic service (usable online or through a mobile app) that allows users to securely store account and password information for multiple payment methods. Using an eWallet like Apple Pay, Samsung Pay, or Google Pay, users can electronically pay for purchases easily and quickly, either online or at the checkout counter. No data on how many of them miss the Velcro sound of their physical wallets opening. Click here for more info:
Mobile Payment
A mobile payment is any payment transacted via a mobile device. Mobile payments typically leverage eWallet apps (see above) to complete transactions. Used in a sentence: “Don’t hate on that guy who got in and out of Starbucks in two minutes: He ordered via their app and used mobile pay!” Click here for more info.
Installment Loan
Installment loans allow consumers to borrow a set amount of money, which they then repay on a regular schedule with a fixed end date. Common examples include mortgages, auto loans, personal loans, student loans, and the payment plan you set up with your dad after running over the lawnmower. Click here for more info.
Revolving Credit
Revolving credit is a loan account that allows you to borrow money up to a set credit limit. Consumers can choose to pay off their balances in full at the end of each billing cycle, or carry over (“revolve”) a balance each month. A minimum monthly payment is usually required to keep the loan in good standing, and interest is typically assessed on any balance carried over. Fun fact: American adults with credit cards average $5,673 in credit card debt, according to the Federal Reserve. Okay, not so fun. Click here for more info.