You should think carefully about which payment method is best for you, as each method has clear benefits and drawbacks, and a poor choice will cause problems.

There are five ways to pay for electricity and gas over a period of time:

1. DIRECT DEBIT: a set amount is deducted from your bank account every month on the same date (or every quarter), based on your supplier’s estimate of your annual usage. (Quarterly Direct Debit may also be available).

Here is the Direct Debit website which includes the important Direct Debit Guarantee. 

2. PREPAYMENT METER (also called a PAY AS YOU GO or PAYG METER): you pay for fuel as it is used by topping up. With a Smart Meter, you can top up remotely using a card or an app and nothing needs to be inserted into the meter. With an analogue meter, you top up by putting money on to an electricity key or a gas card at Post Office/ PayPoint  / Payzone and then inserting the key or card into the meter.

A guide from Scottish Power on this payment method can be found here 

3. PERIODIC BILLING: the supplier sends you a bill (usually every three months) for the fuel you have used in that time. A few older customers still prefer to pay this way.  

4. CARD PAYMENTS / BUDGET SCHEME: the supplier sends you a plastic payment card and you pay a set amount every week, fortnight, or month, based on estimated annual usage. Many suppliers will not offer this payment method unless you ask specifically for it. Some suppliers offer more flexible budget schemes than others.        

5. FUEL DIRECT: the Department for Work and Pensions (DWP) and the supplier organise payment of ongoing fuel usage and debt to be deducted directly from your benefits. This payment is only available to people in arrears and on certain income-based benefits (Income Support, JSA, ESA, Pension Credit or Universal Credit). This payment method is more formally known as Third Party Deductions.  

Here is energy supplier EDF Energy’s guide on the different ways to pay. 

Here is Scottish Power’s guide. 

For most suppliers, these payment methods vary in price.

Monthly Direct Debit is CHEAPEST (many of the cheapest deals require this method).

Prepayment meters are the NEXT CHEAPEST.

Periodic billing, card payments and Fuel Direct are the MOST EXPENSIVE.

In addition, there are many methods for making a one-off payment: by debit or credit card (by telephone or online); by app; through MyAccount; by cash (e.g. at a Post Office); by cheque; by bank transfer; by banker’s draft or even by Postal Order.

Let us consider each payment method in some more detail: 

1. DIRECT DEBIT

Advantages +

Budgeting is made easier because payments are spread evenly i.e. the same sum each month all year round.

Once set up, payments are automatic.

This is usually the cheapest way to pay; many great deals are available only with monthly Direct Debit.

Disadvantages –

A deduction will be made from the bank account, whether it is in credit or not; having ‘insufficient funds’ risks bank charges.

If a customer uses much more electricity and gas than predicted, the Direct Debit figure will increase sharply when the accounts are reviewed.   

Comments

Monthly Direct Debit requires a bank account which will allow such deductions.

It suits households who have a regular income and can budget monthly.

It does not suit customers on benefits who are paid weekly, fortnightly or four weekly as their money goes in on different days of each month.

2. PREPAYMENT METER (also called a PAY AS YOU GO or PAYG METER)

Advantages +

Customer pays for electricity or gas as he or she uses it so avoids debt.

The meter can be set to pay off any arrears very gradually.

Due to the UK Govt. cap, this is now quite a cheap payment method.

Disadvantages –

Self-disconnection: a customer can run out of energy if no money is left.

Comments

This suits people on low incomes or who have difficulty in budgeting.

It also suits customers who have large fuel debt and wish to pay this off gradually over the long term.

3. PERIODIC BILLING

Advantages +

Periodic billing is fully transparent: a customer pays only for the electricity and gas used, after he or she has used it.

Disadvantages –

Large winter bills make budgeting difficult.

Going out to pay the bill can be a hassle.

A more expensive way to pay.

Comments

Billing suits households whose income (and budgeting!) can cope with larger bills.

4. CARD PAYMENTS / BUDGET SCHEME

Advantages +

Payments are small and very regular e.g. weekly or fortnightly.

Payments are spread evenly i.e. the same sum all year round.

These two features make budgeting easier.

Disadvantages –

If a customer uses much more electricity and gas than predicted, the set payment will increase sharply when reviewed.

A more expensive way to pay.

Comments

This suits customers without bank accounts or with an account which cannot accept Direct Debits (e.g. a Post Office account).

It also suits customers who get their income weekly or fortnightly.

5. FUEL DIRECT

Advantages +

Once set up, payments are made automatically.

Deductions are from benefits at source, ensuring fuel is paid for.

Payments are spread evenly i.e. you pay the same all year round.

Debt repayments are set low at £3.70 per week.

Disadvantages –

A hassle to set up.

If a customer uses much more electricity and gas than predicted, the set payment will increase sharply when reviewed.

Once arrears are clear, FD should cease and customer must adopt another payment method.

Comments

This suits customers who are in debt and on Income Support, Employment and Support Allowance, Pension Credit or Universal Credit.

It is a very good option for people on benefits who have high arrears but low usage.

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