Energy Guides

Paying for energy by direct debit

By Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

Using direct debit to pay your energy bills can save you time and money. We assess the advantages and disadvantages of using this payment method… (Updated 12/1/10)

Everyone would like to save money on their energy bills, but before you start rationing the central heating or introducing the “one hot bath a week” rule, there is an easier way to save – switching to direct debit.

Many people are already making the most of the discounts that paying by direct debit offers but if you haven’t already signed up, you’re not alone. Common fears about direct debit payments include being overcharged and not getting a refund if something goes wrong.

However, many of these issues can be overcome. In this article we will weigh up the pros and cons of paying for your gas and electricity by direct debit, as well as revealing the top tips for making direct debit work for you.

• 1. What are direct debit payments?
• 2. Why are direct debit payments cheaper?
• 3. How much could I save?
• 4. Advantages
• 5. Disadvantages
• 6. What happens if I’m overcharged?
• 7. How do I get a refund?
• 8. What happens if I’m undercharged?
• 9. How do I ensure my payments are accurate?
• 10. Will I get disconnected or charged if I miss a payment?
• 11. Code of Practice for Accurate Bills
• 12. Recommendations

1. What are direct debit payments?

Direct debit payments are taken directly from your bank account by your supplier. The payments come out on a specified date, this may be:

• Monthly fixed – a fixed amount comes out of your bank account on the same date each month. This allows you to spread your payments over the course of the year and the fact that the same amount comes out each month means you are able to budget more effectively.
• Quarterly fixed – a fixed amount comes out of your bank account every quarter on the same date. This allows you to spread payments out but the payments will be larger than if you were making them monthly so you will have to budget well to ensure you have enough money in your bank to meet them.
• Variable – your actual energy bill is deducted from your bank account at the end of a fixed calendar period (for example every month or quarter). You are only paying for the gas or electricity you use so the payments will vary in amount, with higher bills in winter than in summer.

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2. Why are direct debit payments cheaper?

Companies claim that direct debit payments are cheaper to process than other payment methods like cash and cheques, but the main advantage for the energy supplier is that their payment is guaranteed. Because of this, they are keen to offer discounts to customers who pay by direct debit.

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3. How much could I save?

The amount you will save depends on which energy supplier and tariff you choose.

Compare energy tariffs now to see how much you could save.

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4. Advantages

The main perk is the fact that using direct debit is almost always the cheapest way to pay your bills and can save you plenty of cash, but there are other advantages too:

• Once your direct debit payments have been set up you don’t have to remember payment dates, removing the possibility of late payments and penalty fees.
• There is no need to write and post cheques so you save money on stamps.
• You have control over the amount and date you pay.
• Fixed payments allow you to spread the cost of your energy over the year, which means no unexpected large bills in the winter.
• If you opt for monthly fixed payments, your payments will be the same amount at the same time each month which can help you budget.

Furthermore, direct debit payments are protected by the Direct Debit Scheme which means:

• You can cancel a direct debit at any time by writing to your bank or building society.
• Your supplier is required to give you written notice (usually 14 days) if they want to change the date or the amount of your payment.
• If your money is ever collected incorrectly, your bank or building society is required to give you a full and immediate refund, even if it is the supplier that made the error.

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5. Disadvantages

There are a few disadvantages of direct debit that you should be aware of:

• Money is still withdrawn from your account even if there is nothing there. You could face fees from your bank (and sometimes your supplier) if you don’t have sufficient funds to cover the payments.
• Because fixed direct debit payments are calculated using previous consumption figures, your payment amounts will not be exactly equal to your actual usage. This means you may end up paying too much or too little to your supplier (see below for more details).
• You lose some flexibility in the way you manage your finances.

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6. What happens if I’m overcharged?

Making direct debit payments that are higher than is necessary to cover your energy usage will result in overpayments to your energy supplier. You won’t receive interest on the money you overpay but you are entitled to a refund.

In some cases, you may not want a credit balance to be refunded, instead preferring to carry it forward onto future bills. Indeed, some payment plans are designed to carry a credit balance on your account over the year (for example monthly payment plans), so you pay the same amount each month in order to spread the energy costs over the year, building up credits for the colder months.

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7. How do I get a refund?

Some suppliers will automatically refund you if they find that your overpayment totals more than a certain amount. If you pay by direct debit, this is made directly into your bank account.

However, some suppliers will not make refunds automatically or will only refund larger amounts automatically. For this reason it is important that you read your bills carefully and ensure you know how much you are paying and how close this is to your actual usage. If you deserve and want a refund, be sure to request one.

The following table shows different energy suppliers’ automatic refund policies:

Table correct as of 12/1/2010

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8. What happens if I’m undercharged?

Following energy price rises, many people may find that because their direct debit payments are fixed, they are not been paying enough to cover their actual energy consumption.

This means if your supplier reviews your payments and finds they are insufficient, you will have to make up the shortfall. Your supplier must notify you of the new increased monthly payment amount and the date from which it will apply. If you have built up a shortfall over a period of time, the supplier may suggest a further increased monthly payment to pay off the amount owed over an agreed period.

It is important you ensure your payments reflect your usage as much as possible as if you want to switch energy suppliers but find you owe a large amount of money, it will restrict you.

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9. How do I ensure my payments are accurate?

You can reduce the possibility of being overcharged or undercharged by managing your account online and taking your own meter readings. This will help ensure your bills are accurate, showing clearly how your direct debit payments relate to the amount of energy you are using.

Generally, online tariffs will also provide additional discounts as taking your own meter readings and entering them online means you are making the correct payments to cover your usage.

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10. Will I get disconnected or charged if I miss a payment?

You should never get disconnected – especially if firms are aware that you are an older customer or have children in the house.

If you miss a payment or are unable to make a payment, contact your energy provider as soon as possible. Government regulations say customers should not be disconnected from services if a payment arrangement is made and payments are submitted on time – even if they are small.

Many energy suppliers offer special payment plans to help those in debt.

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11. Code of Practice for Accurate Bills

The Code of Practice for Accurate Bills has been developed by the Energy Retail Association (ERA, www.energy-retail.org.uk) and is supported by British Gas, EDF, npower, E.ON and Scottish Power. The code regulates how energy suppliers charge and bill customers and sets out what customers can expect from their energy supplier, including:

• Clear, accurate, informative and timely bills and statements
• Support and advice on monitoring energy consumption
• Support and advice for those having difficulty paying their bills
• Contact details for raising questions and issues with suppliers
• A number of ways to provide an actual meter reading.

In addition, the ERA has introduced an Energy Supply Ombudsman that will adjudicate disputed claims for compensation which have not been resolved to the customer’s satisfaction through the supplier’s complaint system.

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12. Recommendations

Paying by direct debit can shave a substantial amount off your energy bills and if you manage your account online as well, you could save plenty of cash. Follow these three top tips and start taking advantage of direct debit discounts today:

1. Plan ahead - To avoid bank charges and possible fines, make sure that you know exactly what date the payment will be taken on and have enough in your bank to cover it. Most people manage this by setting their direct debit payments to leave their account a few days after their wages go in.
2. Take regular meter readings – Providing your supplier with regular readings will give them an accurate measure of your energy consumption and ensure you are making the correct payments to cover your usage.
3. Get online – Entering your meter readings online is the quickest and easiest method. Plus, online tariffs are often much cheaper than their off-line counterparts.

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