Why are there so many Payment Options?
There are 2 main reasons.
- Firstly, suppliers are required by their licence conditions to offer a range of payment methods to consumers. It is a regulatory condition of their right to supply.
- Secondly, certain suppliers are beginning to offer an increasing range of payment options as a way of differentiating themselves through providing greater flexibility to consumers.
Because different payment methods have different cost implications for suppliers, they will normally charge different rates depending upon how you pay.
What payment method would you recommend?
If price is your main consideration, then monthly direct debit will almost always be the best way to pay, and it is also the most convenient.
What is a Direct Debit?
Direct Debit payments are made automatically from your bank account to your supplier on a pre-arranged date either each month or each quarter. You must have either a bank or building society account to operate a direct debit payment scheme. You will also need to complete a direct debit mandate, which your new supplier will forward onto your bank.
Direct Debit payments are protected by the Direct Debit Scheme, which means that:
You can cancel a Direct Debit at any time by writing to your bank or Building Society;
The supplier must give you prior written notice, usually 14 days, if they want to change the date or the amount of the payment;
If your money is ever collected incorrectly, your bank or building society will give you a full and immediate refund, even if the supplier made the error.
Monthly Direct Debit
The direct debit amount will normally be calculated on the basis of your actual or projected annual energy bill and divided into 12 equal monthly instalments. This amount is normally reviewed once a year and your monthly payments are adjusted accordingly.
- Allows you to budget more effectively and to spread your payments over the course of the year;
- Ensures that you will not forget to pay your bills, hence avoiding potential hassles with payment reminders and disconnection notices;
- Direct Debit payments are protected by the Direct Debit Scheme;
- It is almost always the cheapest way to pay.
- The only downside with monthly direct debit is that you give up some flexibility in the way you manage your finances.
Variable Direct Debit
Variable Direct Debit is different to Monthly Direct Debit in that your actual energy bill is deducted from your bank account at the end of a fixed calendar period in which you use the gas or electricity. This calendar period varies depending on the tariff, you signed up for, and can be a quarter, a half year or a year.
- All the advantages that apply to Direct Debit payments generally, will also apply to Variable payments. The main difference is that you only pay for the gas or electricity that you use, in the period in which you used it.
- Your bill payments will continue to be lumpy, with higher bills in the winter than in the summer;
- Certain suppliers will charge more for energy paid by variable direct debit because they do not get the same cashflows benefits that they get from fixed monthly payments.
Also known as Standard Credit, this is where you receive your estimated or actual quarterly bill by post and pay it in the normal way, either by cheque through the post or by cash through your post office. This payment method also includes the option of paying by postal order.
- Allows you to keep control of your finances.
- Does not have the convenience of automatic payment schemes such as direct debit, standing order or continuous authorised credit card transactions;
- Has potential hassles with payment reminders if you forget to pay your bill;
- Due to expenses incurred for processing cheques, postal orders or cash, this is a more expensive way of paying for your energy bills, compared with other payment methods.
Credit /Charge Card
There are two main ways to pay for your energy with your credit or charge card.
- Calling your supplier, following receipt of your bill and charging it to your card:
- Or, having the bill automatically paid with your card under a Continuous Authorised Transaction (CAT).
With CAT schemes, your actual or projected annual energy bill is divided into periodically equal instalments (monthly or quarterly) and automatically billed to your card.
The details of which schemes and cards apply to different tariffs are summarised on the tariff results pages.
- Other than the potential savings on offer, credit card payment also gives you an additional interest free credit period, which can be anything up to 56 days, before you have to pay your bill;
- It allows you to obtain additional benefits applicable to the credit card of your choice, such as Air Miles, or Barclaycard Reward Points.
- CAT schemes allow the supplier to alter the timing and the amount of the payment prior to informing you. However, they are still obliged to inform you, in writing, that the change has been made;
- CAT schemes do not offer the same level of protection as Direct Debit Schemes. If errors are made with your payments you need to rely on your supplier correcting them;
- If you want to cancel a CAT, you need the authorisation of the company debiting your card. This will normally happen automatically if you decide to cancel your contract;
- If you forget to pay your credit or charge card bill on time you will have to pay interest on the unpaid bill at the monthly rate applicable to the card.
Charge card payments are administered in the same way as credit card payment schemes. The main difference is that you must clear your charge card account by the due-date; therefore your interest free period is shorter. However, if you pay your energy bill using your charge card, you will benefit from any loyalty schemes offered by the charge card company.
PC Banking / Telephone Banking
This option allows you to pay your bills either by calling you bank, or online.
Prepayment schemes are ones where you pay up-front for the energy that you use by inserting coins, tokens or cards into your meter.