MONTHLY DIRECT DEBITS AND WHAT IS A REASONABLE AMOUNT TO BE IN DEBT IN MAY

MattMattMattUK

deano2099 said:

MattMattMattUK said:

It is only impossible if one expects twelve equal payments in the first year, or does not expect to pay a lump sum to stay out of debt if they join in autumn/winter. Personally I think we probably should drop fixed/budget Direct Debits a some point, they are an oddity, I cannot think of anything else that varies in usage but is paid for on a fixed monthly amount. 

I agree with that but would add I can't think of anything that varies in cost but is paid for by direct debit. I'd have no problem at all if companies weren't allowed to charge more for "pay on bill".
(edit - phone bills!)

Most people pay their credit card by Direct Debit and the payments vary monthly by usage. One month my bill might be a few hundred, the next a few thousand, not everyone's will vary that much, but the majority do pay by Direct Debit. Possibly phone bills, although on most tariffs most people do not go over their packages. 

deano2099 said:

It would be relatively easy to increase the amount for the first 3-6 months, the drop down to one twelfth, if someone joined in Winter, or have them pay a chunk initially

Well yeah, that'd be sensible. But it's not how it's done at the moment. Instead energy companies review direct debits at seemingly random intervals and use some bizarre logic to estimate spend that no-one seems to understand. I'd fully support a process where everyone got an estimated annual bill in March, which then set their direct debit for the next year - and the following March they review it and you get a bill for any extra you spent or a refund of anything you didn't use.
I would imagine though, that were we to try and implement this, the energy companies would say this was too difficult, as it creates a significant chunk of work during the course of one month - not just the billing, but dealing with queries and so on.
The reality is the energy companies need their DD reviews and admin associated with them to be spread out throughout the year as they have the same number of staff working every month. 
Which goes back to my original point - if you want everyone to pay on fixed direct debit Mar - Mar, you have to bill everyone in March. If you want it split throughout the year, you have to accept that some people will be in debit at some points of the year.

deano2099 said:

There could be some additional factors built in, that there must be a valid smart meter read, or a submitted read. Most variable Direct Debits default to a higher prediction of monthly usage if there is no read, usually about 20% over what would be expected. There could be some safeguards built in relatively easily, which might be easier if variable/whole monthly Direct Debit was a mandated payment method rather than optional. 

There are definitely ways to do it but they don't exist right now, which is why I can't blame anyone from not wanting to risk it right now.

I think the risks are vanishingly small though, sure some on here do have problems, however out of the 29 million domestic energy supplies they are very very low. We often see that many of the issues are caused by users, not submitting readings, aware that there is an issue with their meter but not reporting it because they think that they might get free energy etc. There are genuine cases where it goes wrong and it is the suppliers fault, we do see them on here and it does often feel for those people as if they are banging their head against the wall and end of up having to go to the ombudsman, but it would be relatively easy for Ofgem to write regulations to solve those issues if they were willing to force through a solution. 

Spoonie_Turtle

MattMattMattUK said:

deano2099 said:

MattMattMattUK said:

It is only impossible if one expects twelve equal payments in the first year, or does not expect to pay a lump sum to stay out of debt if they join in autumn/winter. Personally I think we probably should drop fixed/budget Direct Debits a some point, they are an oddity, I cannot think of anything else that varies in usage but is paid for on a fixed monthly amount. 

I agree with that but would add I can't think of anything that varies in cost but is paid for by direct debit. I'd have no problem at all if companies weren't allowed to charge more for "pay on bill".
(edit - phone bills!)

Most people pay their credit card by Direct Debit and the payments vary monthly by usage.

A credit card is not a necessity to live and certainly not something that everyone has.  People who struggle most financially, with a tight budget (fixed income and need their outgoings to be fixed - which is where difficulty arises when the price of everything shoots up whilst income doesn't) may never take out a credit card because they don't want to risk being able to spend more than they can pay, even in an emergency.

Chrysalis

matt_drummer said:

[Deleted User] said:

Thanks for the reply - makes sense to me now.

Incidentally, in regards to FDD, my view is that it should be phased out in favour of Smart Prepayment tariffs, which would give people much the same thing given the direction of travel of FDD seems to be to put you in a position where you're always paying in advance. The advantage of Smart Prepayment is that it is much more obvious what you're doing - building up credit on the meter in the summer to pay for the winter - just like the old days of jars on the mantlepiece. It's only a small step from there to people putting the same amount in a savings account if they prefer.

And the energy company could simply suggest an amount to overpay in the summer based on some industry wide algorithm and leave it to people to decide for themselves whether to pay more or less. I'd also expect Smart Prepayment rates to be discounted to reflect the lower cost to the energy companies, and some of them are already doing that.

It sounds identical to a fixed direct debit to me.

What is the difference?

The energy company is still being paid in advance?

For me the clear difference is FDD is a kind of "set and forget" you negotiate or set a DD and then just take your eye of the ball on what you using, and we end up with a culture who only cares about what DD they paying without understanding how cost of energy is calculated, which can also lead to the large deviations talked about on here, the idea presented makes someone more aware as the top ups are manual and the credit is shown whenever you carry them out.

deano2099

MattMattMattUK said:

deano2099 said:

MattMattMattUK said:

It is only impossible if one expects twelve equal payments in the first year, or does not expect to pay a lump sum to stay out of debt if they join in autumn/winter. Personally I think we probably should drop fixed/budget Direct Debits a some point, they are an oddity, I cannot think of anything else that varies in usage but is paid for on a fixed monthly amount. 

I agree with that but would add I can't think of anything that varies in cost but is paid for by direct debit. I'd have no problem at all if companies weren't allowed to charge more for "pay on bill".
(edit - phone bills!)

Most people pay their credit card by Direct Debit and the payments vary monthly by usage. One month my bill might be a few hundred, the next a few thousand, not everyone's will vary that much, but the majority do pay by Direct Debit. Possibly phone bills, although on most tariffs most people do not go over their packages. 

That's a good one - I guess it's far easier to check your usage on a credit card though, and you're not using it every day - you'll normally be using it more consciously than energy. Usage reports from smart meters are getting quite good now but it doesn't all tie up perfectly with the billing system.
You're right the probability of the risk occurring is low, but the impact is potentially very high (causing you to miss a mortgage payment for example) - it's not a risk I'm personally willing to take.

BUFF

Chrysalis said:

matt_drummer said:

[Deleted User] said:

Thanks for the reply - makes sense to me now.

Incidentally, in regards to FDD, my view is that it should be phased out in favour of Smart Prepayment tariffs, which would give people much the same thing given the direction of travel of FDD seems to be to put you in a position where you're always paying in advance. The advantage of Smart Prepayment is that it is much more obvious what you're doing - building up credit on the meter in the summer to pay for the winter - just like the old days of jars on the mantlepiece. It's only a small step from there to people putting the same amount in a savings account if they prefer.

And the energy company could simply suggest an amount to overpay in the summer based on some industry wide algorithm and leave it to people to decide for themselves whether to pay more or less. I'd also expect Smart Prepayment rates to be discounted to reflect the lower cost to the energy companies, and some of them are already doing that.

It sounds identical to a fixed direct debit to me.

What is the difference?

The energy company is still being paid in advance?

For me the clear difference is FDD is a kind of "set and forget" you negotiate or set a DD and then just take your eye of the ball on what you using, and we end up with a culture who only cares about what DD they paying without understanding how cost of energy is calculated, which can also lead to the large deviations talked about on here, the idea presented makes someone more aware as the top ups are manual and the credit is shown whenever you carry them out.

Only if you allow it to be so. I like FDD from a budgeting point of view but I have a very good idea of what my normal energy use is to start with, I read my meters regularly & enter those readings into a system that produces analysis for me. Every 6 or 12 months there will be a slight adjustment to compensate for decreased/increased usage but it's usually minimal & in the last few years with milder winters here has been in my favour i.e. decreased.