Energy Direct Debits help
Lower your payments & get money back
Opting to pay your energy bill through a monthly Direct Debit can save you over £100 annually compared to paying upon receipt of each bill. However, Direct Debit payments are calculated based on an estimated annual usage, which is then divided by 12. If this estimate is inaccurate, you might end up overpaying. In fact, last year, suppliers held around £3.7 billion in credit from overpayments. Here’s how to ensure your bill is accurate and what steps to take if it’s not.
Use our calculator to check your Direct Debit is right under July’s Price Cap rates
On 1 July, the Energy Price Cap fell by 7% a year for a typical household. If you’re on a price-capped standard tariff – and about 85% in England, Scotland and Wales are – then you can check if your Direct Debit amount is along the right lines based on July’s rates.
Just tell us your energy usage and what region you’re in (as rates differ across regions) and we’ll give you an estimate of what you should be paying.
‘Is your Direct Debit right?’ calculator
Use our ready reckoner to see if your Direct Debit is too high under the Energy Price Cap
Important (please read before using the calc):
1) This tool is only for those in England, Scotland and Wales.
2) It’s for standard tariffs under the Price Cap, not fixed deals, Economy 7/10.
3) The Price Cap will remain at its new level until 30 September 2024.
4) It’s based on the average Price Cap rates per region.
5) It doesn’t factor in any debt or credit on your account.
6) It’s not 100% accurate as firms can charge different rates, but it should be in the right ballpark.
How much energy do you use?
To make this work properly, we need your annual usage, which you should find on your most recent bill. If you can’t find it, you can take your monthly usage and multiply by 12 – but be aware, this may not be accurate as usage varies by season.
If you’ve electricity only, enter 0 in the ‘Annual gas usage’ box below.
What region do you live in?
The price cap varies slightly by region.
Key points on energy Direct Debits
Here are your need-to-knows about how energy Direct Debits work.
1. What you pay isn’t necessarily the same as the cost
It’s important to be clear that the price you’re charged and the amount you pay every month aren’t the same thing.
- The price of the energy
Energy costs are set by suppliers. Usually, they’re a combination of a daily standing charge plus an additional amount based on energy used, measured in kilowatt hours (kWh).
After all’s said and done, this is what your energy actually costs. The lower the rates and the less you use, the less you owe.
- What you pay
With a monthly Direct Debit, the company estimates your annual usage and spreads it over 12 months. In summer, you’ll usually build up credit as you use less, but you’ll likely need this surplus for wintertime.
But some energy bills are massively overestimated, where the amount paid seems to have been separated from the cost of the energy you actually use. Many customers feel their suppliers set Direct Debits willy-nilly. We’ve more details on How energy suppliers set Direct Debits.
Remember, even if you’re on a fixed tariff, your Direct Debit can go up if your supplier thinks you’ll use more.
2. Paying by Direct Debit is cheaper
While there are problems, there’s one important fact in favour of setting up a monthly Direct Debit – it’s about 6% cheaper than paying on receipt of a bill. For maximum savings, combine it with:
- Always give meter readings. Give your supplier regular meter readings and it’ll give you a more accurate bill. If you don’t, you may find you’re paying for high estimates.
- Smart meters. These send meter readings to your supplier automatically, so you should get an accurate bill. Some older models lose this ability after you switch supplier though, so you may need to start doing it manually again. See our Smart meters guide for more.
If you use heating oil to heat your home, instead of gas or electricity, it’s different. Paying by Direct Debit won’t get you a discount. But it can be convenient as it allows you to spread the costs. Heating oil users can learn simple steps to save in our Cheap heating oil guide.
3. Pay too little and you can end up owing your supplier
While this guide focuses on excessive Direct Debits, the other worry is when they’re set too low. This can happen when you use more energy than expected.
Remember, lowering your Direct Debit doesn’t lower the cost. It just means you’ll pay less each month, then get a huge bill at the end of the year which you may not expect and will be chased for. If the debt gets too high, you may not be able to switch suppliers.
4. Ask for a payment plan if you’re struggling to pay off debt
If you do find yourself in debt, talk to your supplier as soon as you can. If you just ignore the debt, your supplier could contact you about the possibility of installing prepayment meters.
According to the regulator, suppliers must work with you to agree a payment plan you can afford.
Payment plans have to factor in both your financial circumstances and your ability to pay. The debt is then repaid over a number of months alongside what you pay for your ongoing energy use.
You could also get payment breaks or Direct Debit reductions, more time to pay, and access to supplier hardship funds. See our What to do if you’re struggling to pay your energy bills guide for full info.
If your supplier won’t help you, complain and challenge its decision.
Know your Direct Debit rights
The regulator’s licence conditions set out guidelines for “fair and reasonable” Direct Debits. Under condition 27 of the Gas Supply Licence, suppliers must:
- Set fair Direct Debits. They must take reasonable steps to ensure customers’ Direct Debit levels are based on the best available information, including the quantity of gas and electricity supplied.
- Give clear explanations. If you ask, your supplier must clearly explain why it’s chosen that amount for its Direct Debit.
- Refund credits. If a credit has been accumulated and a customer requests its return, suppliers are obligated to issue a refund. Should the supplier believe that the credit should not be returned, they must provide a clear explanation for their decision. Customers have the right to contest this decision (see how to challenge it).
In theory, this should make it much easier for consumers to get fair Direct Debits set for them and reclaim refunds where due. As this is a licence condition, energy regulator Ofgem can fine suppliers if they breach it.
Annoyingly, Ofgem doesn’t set out what’s “fair and reasonable”. Instead, it leaves it up to the supplier to decide. If you disagree and the company won’t sort out your complaint, you can go to the free, independent Energy Ombudsman to dispute it.
How to fight unfair Direct Debits
Although suppliers are required to adhere to specific guidelines, and many do provide automatic refunds, you might still face challenges in recovering your money. Companies can benefit from holding onto your funds by accruing interest. Here’s how to ensure you receive the refund you deserve:
Step 1: Always do a meter reading and send it to your supplier
Don’t allow the company to depend solely on its estimates: this often results in inflated Direct Debits. Ensure accuracy by submitting regular meter readings.
Instructions for reading your meter can be found on your bill or online. Typically, you can submit readings online, through an app, by calling an automated system, or occasionally by speaking to a customer service representative.
If you haven’t provided a meter reading before and have relied on estimates, take the reading and wait for the updated bill before requesting a reduction in your Direct Debit amount.
Step 2: If you’re heavily in credit ask for your money back
Energy consumption fluctuates with the seasons, so it’s common to have accrued some credit between summer and winter. However, if you find that your credit balance is excessively high, it might be wise to request a partial refund of the overpaid amount from your supplier before asking them to reduce your Direct Debit payments.
From April 2023 to March 2024, Ofgem reported that energy suppliers held approximately £3.7 billion in customer credit. By the end of March 2024, the average household energy account was in credit by about £175, equivalent to roughly one month’s bill.
The regulator, Ofgem, mandates that suppliers must refund any accumulated credit, although it doesn’t specify what it considers a fair amount.
That said, you may still have to chase. If you think you’re owed, call and ask for your cash back. Quote condition 27 of the Gas Supply Licence, which states credits must be refunded and Direct Debits fair. If it won’t reset it, you’re entitled to a full explanation, and you can complain to the Energy Ombudsman.
Step 3: Call to ask for a lower Direct Debit
You have the right to request an explanation for the level at which your Direct Debit is set, so make sure to call and inquire. If you consistently have a credit balance and it’s not just due to seasonal usage fluctuations, politely ask for your Direct Debit to be adjusted to reflect your ACTUAL annual consumption and meter readings.
There might also be a small debt on your account. If so, settling a £20 debit balance to bring the account to zero can give you more negotiating power when discussing the Direct Debit. Customer service representatives may have limited flexibility due to their systems, but clearing the debt might provide them with some room to adjust.
Keep in mind that energy companies tend to slightly overestimate payments rather than underestimate them to prevent you from facing a large bill at the end of the year. If your attempt is unsuccessful, proceed to the next step.
Step 4: If they won’t budge on the phone, formally request the Direct Debit be lowered
At this stage, you’ve exhausted the standard procedures, and now it’s crucial to make it unprofitable for the energy company to persist in overcharging you.
Composing a formal letter shows your serious intent and determination to resolve the issue. State that your Direct Debit amount is excessively high and indicate that if no adjustments are made, you will take your business elsewhere.
Can I just pay for what I use by Direct Debit?
The prevalent form of Direct Debit is the ‘fixed’ monthly Direct Debit, but there is also a ‘variable’ monthly Direct Debit option offered by E.on Next, EDF, Octopus Energy, Scottish Power, So Energy, and Utility Warehouse. However, this option is not available with British Gas or Ovo at this time.
Both types of Direct Debit have identical rates, meaning there is no difference in cost over time. The primary difference lies in how they affect your monthly cash flow (the amount of money coming in and going out each month).
- ‘Fixed’ monthly Direct Debits spread costs over the year: Your supplier projects your usage for the upcoming 12 months and divides the payments evenly to simplify budgeting. The amount may adjust if your consumption significantly increases or decreases, or if gas and electricity prices fluctuate. This is the most common payment method.
- ‘Variable’ monthly Direct Debits pay for what you use: To do this, you need to either a) have a functioning smart meter or b) submit meter readings monthly. Your payment will then be based on your monthly usage. Anticipate significantly higher bills during the winter months and lower ones in the summer, which can impact your cash flow. Typically, you’ll receive a bill a few weeks before the payment is due, informing you of the amount your provider will withdraw that month.
So who should be switching to variable Direct Debit
“While it can be quite frustrating, if the standard practice of monthly fixed Direct Debits didn’t exist, it’s something I would advocate for energy companies to implement. Spreading out your expenses over a year is tremendously helpful for budgeting and, when managed correctly, can significantly simplify life. So if it’s not causing you problems, it’s advisable to stick with it.
“The issue arises when you perceive that the estimated Direct Debit amount is incorrect—typically, the greatest frustration occurs when it’s too high, particularly if you’ve accumulated a large credit balance. The first step should be to attempt to rectify this by ensuring you have a smart meter or provide regular meter readings. If you do, utilize our ‘Is your Direct Debit fair?’ Calculator to determine whether the Direct Debit amount is genuinely justified or just feels excessive due to recent price increases. If it’s deemed unfair, communicate with your provider to request a reduction.
“If these measures fail, switching to a variable Direct Debit may become a viable alternative. However, be prepared for higher payments during winter months and greater fluctuations in your bills.”
Variable Direct Debit is far cheaper than ‘payment on receipt of a bill’
There exist alternative payment methods, such as paying upon receipt of an invoice or paying upon demand, where you receive a monthly bill based on your usage. However, with these methods, you settle the bill with cash (either through manual card payment or at the post office) as soon as you receive it, rather than establishing a Direct Debit arrangement.
Nevertheless, this payment approach comes at a significantly higher cost. Starting from July 1, 2024, paying upon receipt of an invoice will, on average, incur a 6% premium compared to paying via Direct Debit. This translates to an annual payment of £1,668 for households opting to pay upon receipt of bills, whereas those on Direct Debit typically pay £1,568 annually.
What happens to my credit if my provider goes bust?
Since September 2021, more than 4 million individuals have faced disruptions due to supplier insolvencies. Rest assured, your energy supply remains secure, and any outstanding credits will be refunded to you without risk.
Under regulator Ofgem’s safety net rules, when a supplier fails, a new one is appointed to take over, and once it does you’ll usually be moved onto its standard tariff – the most expensive type of tariff.
If your account shows a surplus at the time the supplier becomes insolvent, the replacement supplier appointed by Ofgem will either refund it to you, regardless of whether you had switched providers before their closure, or allocate it to your new account to cover upcoming energy expenses once they assume responsibility for your supply.
How to complain about your energy provider
Customer service in the energy sector often lacks consistency, where a provider that satisfies one customer might disappoint another. Issues such as billing errors, complications with switching providers, excessively high Direct Debit payments, delays in refunds, and similar challenges are widespread.
It’s always worth trying to call your provider to sort the issue first, but if not, you can use free complaints tool Resolver. The tool helps you manage your complaint, and if the company doesn’t play ball, it also helps you escalate your complaint to the free Energy Ombudsman.