How Do Energy Direct Debits Work?
There are two different types of direct debit – a fixed direct debit and a variable direct debit.
Fixed direct debit
Upon agreeing to a direct debit, your supplier will calculate the amount you’ll have to pay each month. To do this, the energy firm will calculate how much you’ll spend in energy over the course of the entire year. Of course, this is entirely an estimate.
This fixed rate will leave your account on a monthly basis. Some months, you may use more energy than you pay for. In other months, you may use far less – particularly in the summer.
However, given that your entire annual energy usage is divided over 12 months, your payments will likely balance out. You won’t get landed with a huge energy bill in the winter, as you already paid more than you needed to in the summer.
So, if you end up using more energy in the winter than you did in the summer, a fixed direct debit agreement could still benefit you.
If you still use more energy than you paid for, you’ll owe this outstanding balance to your supplier at the end of the year. You can either pay this off or have it included in the monthly bills for the following year.
Variable direct debit
A variable direct debit can change from month-to-month (or quarter-to-quarter). It reflects exactly how much energy you’re using each month. So, you’ll most likely pay higher bills in the winter and lower bills in the summer.
This is beneficial for businesses that experience seasonal influxes. However, it may not work for your business if you’d rather divide the costs up over the course of the year. For this reason, it’s not recommended for small and medium businesses.