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What Are Direct Debit Energy Bills And How Do They Work For My Business?

If you pay for your business energy bills monthly, then you most likely pay them via direct debit. Direct debit business bills work just like domestic direct debit bills. It’s basically an agreement between you and your supplier. It permits them to collect money to cover your energy usage monthly on a fixed date.

Despite its straightforward nature, direct debit payments can still confuse business owners. Particularly as the energy crisis continues to cause energy prices to soar.

In this guide, we’ll explain how direct debit energy bills work for your business.

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What Are Direct Debit Bills And How Do They Work For My Business?

Agreeing to pay for your energy bills with direct debit means that your bill payments will be automated each month. Once you set up a direct debit, you don’t have to do anything – your supplier will take money from your bank automatically.

Whether you’re a small or large business, paying by direct debit offers a lot of benefits.

For one, the direct debit amount often works out cheaper than standing orders and other payment methods. This is because suppliers often provide discounts.

Why do they offer discounts? Because direct debit payments benefit both parties. A fixed rate is taken by the supplier each month at the same time. This makes budgeting easier for you and makes things better organised for the supplier.

Some energy suppliers even allow you to pay your bills quarterly. A quarterly direct debit means your annual energy usage will be divided into four. While this means you’ll have to make bigger direct debit payments, it gives you more time to organise your spending.

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.

How To Set Up A Direct Debit For Your Business Energy Bills

Firstly, you compare business energy prices on Business Energy Comparison. Once you find a business energy rate that works for your business, we can help you switch. We can also help arrange a direct debit plan between your business and the supplier.

During this process, you’ll need to provide the supplier with a few details about your business. This includes your business bank sort code and account number. You’ll also have to provide gas and electricity meter readings.

Quarterly Direct Debit Explained

As aforementioned, a quarterly direct debit is the same as a monthly direct debit. Only, the payments are bigger and the money comes out of your bank account four times a year instead of twelve. Normally, a quarterly direct debit leaves your bank account once every three months.

A quarterly direct debit may work out cheaper than a monthly direct debit. Some energy suppliers offer special discounts for quarterly payments. You can compare energy prices on Business Energy Comparison to determine the best direct debit set-up for you.

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What’s Involved In An Energy Bill?

The direct debit amount you pay is made up of several parts. While the price of your monthly direct debit mostly reflects the cost of your gas and electricity, there are other aspects that contribute towards the total. These aspects include:

Network costs

Some of your direct debit payment goes towards supporting the energy network. This helps to maintain the electricity cables and gas pipes that deliver energy to your business premises.

Wholesale costs

This contributes towards the wholesale cost of energy paid for by your supplier. Energy is first made by gas producers and electricity generators. Once produced, your supplier needs to then buy this energy on the wholesale market. Roughly a third of your energy bill will contribute towards this wholesale cost.

Social and environmental obligation costs

This part of your energy bill helps to pay for government green energy policies. You’re basically paying towards renewable energy initiatives and other green policies. The social aspect of this charge is to provide aid for vulnerable people who can’t afford their energy bills.

Direct costs

This helps pay for direct materials and direct labour. If you pay for direct costs, you’re covering the costs of installation, meter maintenance, and administration costs.

Supplier operating and margin costs

This helps your supplier run their business and acts as a customer service fee.

What Happens If You Can’t Pay For Your Energy?

As business gas and business electricity prices continue to soar, there is no price cap on business energy bills. This means that, unlike domestic energy bills, the price of business energy will continue to increase. While the Energy Bill Relief Scheme has provided some degree of support for business owners, the vast majority are still struggling.

So, what if there’s simply not enough money in your account to cover your business energy direct debits? According to Ofgem – the government regulatory body for electricity and gas – you should contact your supplier immediately. Instead of waiting for them to find you don’t have sufficient funds, you could potentially work out an alternative means of paying.

It may be possible to get an energy price break, more time to pay, or even a reduction in your direct debit amount. Your supplier will also be able to offer you advice on how to use less energy.

If you don’t contact your supplier in advance, they may disconnect you or install a prepayment meter.

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Do I Get To Choose The Start Date For My Direct Debit?

Normally you can choose the start date for your direct debit. Most energy suppliers will offer direct debit dates between the 1st and the 28th of each month. This is to avoid the difficulty of selecting a date in months like February. There’s no reason why you shouldn’t be able to choose a date that best aligns with your business cash flow.

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Why Are Energy Direct Debits Increasing?

An increase in your direct debit estimates may not be to do with your energy usage. Since the second half of 2021, energy prices have incrementally been increasing. Luckily for domestic energy consumers, the government introduced a price cap. A price cap is the maximum amount that a supplier can charge you for your energy.

However, no such initiative was introduced for businesses. This means that businesses across Britain have felt the brunt of the ongoing energy crisis.

There are several reasons why direct debits have increased and what has caused the energy crisis as a whole. The main reason behind the energy crisis is the increasing price of gas in recent years. Gas prices went up following the pandemic due to scarcity and high usage during lockdowns. The Russian war has also caused supply chain issues.

On the whole, production costs have risen. Unfortunately, many U.K. businesses are suffering because of this increase in energy and utility prices.

What Happens If You Use Less Energy Than The Direct Debit Amount?

One of the best aspects of paying for a monthly direct debit is that you can build up credit. Whenever you use less energy than your predicted amount, you’ll accrue credit. This credit could help cover the costs of the extra energy you use in the winter. This surplus will help you avoid the cost of going over your monthly estimated amount in colder months.

However, if you don’t use this credit in the winter, you can claim a refund from your supplier. Whether this refund is granted depends on several factors. If you’ve only got a small amount of credit, for example, your supplier may not return it.

Alternatively, you could potentially roll this credit onto the following year, if you stay with the same energy supplier. This way, you may receive a monthly direct debit discount for the following year.

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Direct Debit And Switching Energy Suppliers

When you switch energy suppliers, your old direct debit will be cancelled. You should inform your old supplier that you’re switching and arrange the date of the final bill with them. After this final date, you should check with your bank to ensure that the direct debit has been cancelled.

If you plan on paying by direct debit with your new supplier, you should set this up with them upon switching.

Final Thoughts

Direct debit bills leave your business bank account on a fixed date every month. When paying by direct debit, your business benefits in several ways.

For one, it helps you better organise your finances. When you opt for a fixed direct amount, the exact same amount of money will leave your bank account monthly. Fixed direct debits also help you distribute your energy costs over the course of a year.

Variable direct debits, on the other hand, can change month-to-month and can lead to a direct debit payment increase. This type of direct debit is beneficial if your business is only busy in certain seasons.

Use Business Energy Comparison to find the most reasonable energy supplier, and set up a direct debit online today!

Frequently Asked Questions

How do you lower your direct debit estimated bills?

The best means of lowering your direct debit estimate is to have a smart meter installed. Smart meter readings will keep your supplier informed of your energy usage more accurately. If there’s a point in the day when your energy usage is particularly high, you could send half-hourly updates to your supplier.

Can an energy company increase the price of your business energy direct debit without your permission?

As with all energy direct debits, your supplier needs to inform you of a price increase before they charge you for one. By informing you, your supplier is abiding by the ‘direct debit guarantee’. If they don’t inform you, you should contact them and complain.

Can I cancel my business energy bill direct debit?

This depends on your supplier. In most cases, energy suppliers do not allow you to cancel a direct debit within the agreed time. There is also no ‘cooling off’ period. For this reason, it’s best to read the terms and conditions of your direct debit thoroughly before agreeing to this monthly bill.