Why Payments Take Long to Process

It’s happened to the best of us: You put off paying your utility bill so your paycheck can clear, then remember, the night before it’s due, that — oops — you forgot to make the payment. The faux pas doesn’t seem like such a big deal; the bill’s not due until tomorrow, right? But 24 hours later, your online bill payment hasn’t processed. Why?

What’s Taking So Long?

Online bill payments run through the Automated Clearing House, or ACH, network. The network was set up more than 40 years ago as a way for consumers and corporations to move money to and from their respective banks. Back then, the network was more of a “big room where a representative from each bank would have a desk … and hand checks to each other” that were to be counted, processed and settled among the group the next day, said Jason Oxman, CEO of the Electronic Payments Association.

Now the network, which is governed by the Federal Reserve and trade group NACHA, is electronic but works much the same way. Financial institutions batch transactions and use a one-time, next-day settlement as a way to avoid having to make multiple and, more notably, unnecessary payments to one another in a 24-hour timeframe. So, while your bank may owe your utility company’s bank $40 to cover your monthly bill, when you consider all the other payments made back and forth between them, the balances may look very different. “If you add them all up, maybe one bank only owes the other bank $100,” Oxman said.

Often, the current ACH process doesn’t throw consumers too far off their bill-paying course.

“When everything’s hitting right, it’s a next-day transaction,” Steve Kenneally, vice president of payments and cybersecurity policy for the American Bankers Association, said. For instance, if you were to go online to pay your electric bill at noon on Monday, the electric company would receive the credit by close of business on Tuesday (around 5 p.m.) But were you to just miss a bank’s cutoff time for processing batches, then, yes, things are going to take awhile longer.

For instance, if you logged on to to make a payment at 9 p.m. on Monday, but your bank has a cutoff of 8 p.m., most likely, the credit would be included in Tuesday’s batch and settled on Wednesday, Kenneally said. Weekends and holidays can further complicate and extend the process. If you’re paying on a weekend, “add two days,” he said. “And, if it’s a long weekend, you add three days.”

Getting Ahead of the Game

The good news is, the process may soon speed up. Earlier this year, the Federal Reserve approved a same-day ACH payments rule that is set to go into effect in September 2016. (The rule essentially adds more batches to each day, allowing payments to get processed in a more timely fashion.)

Until then, you should be aware of potential lag times and take steps to ensure you meet your due dates because the bank or service provider isn’t going to accept “ACH took too long to clear my payment” as an excuse for missing one. “The consumer is responsible for making the payment on time,” Kenneally said. “It is similar to putting a check in the mail. If the payment is due on the Tuesday after Memorial Day, when the Post Office is closed, you should factor that into when you mail the check.”

Making payments on time is crucial when it comes to maintaining a good credit score. A missed payment that gets reported to the credit bureau can cause a good FICO score to drop around 100 points. Other bills that go unpaid long enough can wind up in collections, which is even worse. (You can monitor how missed payments may be affecting your credit by pulling your free annual credit reports from AnnualCreditReport.com and viewing your free credit scores each month on Credit.com.)

To keep from missing an important payment, you could set up automatic payments to process a few days before one is due. You may also want to take advantage of alerts offered by a financial institution or service provider that let you know a due date has been missed or, alternately, is coming soon. If you do miss a payment — and if your track record has been pretty stellar prior to the slip-up — you can call the company in question up and ask if they’ll give you a pass and waive any late fees just this once.