Martin Lewis: Get £100s of credit back from your energy firm – it's all about the Direct Debit cycle…

Energy firms are said to be sitting on over £3 BILLION of our cash, building up this huge reservoir from the two-thirds of homes who pay by monthly Direct Debit. Yet right now, May, is the PERFECT TIME to stop the rip-off and get that money back – it's all about understanding the Direct Debit cycle.

PS: If you're reading this after May, don't worry – it'll still help…

In this blog

Energy credit and debt is meant to happen…

To set your monthly Direct Debit, most firms take your annual cost and divide it by 12 (a few do it seasonally), aiming to smooth things out so you avoid high-use winter bill shocks. It's a good budgeting concept, one I'd probably call for them to introduce if it didn't exist, as long as you understand...

'We're meant to be in credit for part of the year, debt for the rest – the key's to know where you should be at, when!'

Yet it's far from perfect – while the concept is good, the issue is implementation. Monthly Direct Debits are based on an estimate of usage. If the estimates are wrong, which is common, they can leave some unnecessarily overpaying with too much credit or others getting into too much debt. Some of the reason is energy firms getting it wrong; some is us not doing what we need to do, which is to... 

- Always give regular meter readings
- Or get a (working) smart meter, so the readings are done automatically

Two key Direct Debit must-knows before we start…

1) Don't assume your Direct Debit is fairly set. With so many substantial price changes over recent years, and the fact many have reduced their usage, Direct Debits are tough to keep track of and may have gone out of kilter. So plug your figures into our speedy Direct Debit Calculator to see what's about right.

2) Thinking of ditching Direct Debit? Be careful – it's where the best deals are. Since January 2024, under the Energy Price Cap, which dictates the rate most homes in England, Scotland and Wales pay, the cost of paying by prepayment has slightly undercut Direct Debit. But the cheapest deals and fixes for those comparing and switching are primarily directed at Direct Debit customers (use our Cheap Energy Club comparison to find your best) so that's where you get the most competitive rates.

If you do hate Direct Debit, it's worth knowing if you go for 'payment on receipt of bills' (where you pay after the fact, the amount you've used) you will pay roughly 6% more than Direct Debit. Instead check if your supplier offers variable Direct Debit, where what you pay each month isn't set, it's simply based on your usage, but automatically taken. This is still at the same Direct Debit price (though not all deals are available). Just ensure you budget for big winter bills though.

The energy Direct Debit cycle

Prefer to watch? The clip below has been taken from ITV's Good Morning Britain, which aired on 3 May 2023, with the permission of ITV Studios. All rights reserved.

Martin explains how the energy Direct Debit cycle works.
Embedded YouTube Video

Clearly, we use less energy in summer than in winter. Yet below is internal data Octopus Energy kindly gave me pre-energy crisis (though the cycle is very unlikely to have changed much). What's fascinating when you look at this data is the time-lag – things peak and trough later than you may expect. 

So look at the patterns of the graphs. The first is for a dual-fuel customer who moved to the firm, with a zero balance on 1 January. The scales show how much the credit or debt will be compared with your MONTHLY DIRECT DEBIT AMOUNT…

  • Early May is the baseline for when you should have minimum credit. While the midpoint of winter weather is around the end of January, it takes until May for your energy debt to stop increasing. So early May is when you should have the minimum credit. In this scenario, you'd have nearly two months' worth of debt.

    So if your bill is up to date, your Direct Debit is about right, and you've done a meter reading and you're in credit (for safety let's say OVER ONE MONTH'S DIRECT DEBIT IN CREDIT IN MAY), you should look at getting your credit back.

  • Early November is the time you should have maximum credit. It's after summer's peak, in late August, by the time you're actually in credit, with that maxing out in November. So, you would want that buffer zone of a month or two's worth of credit then.

It's important to note the patterns change depending on when you moved to the firm and had a zero balance. The conclusions are the same though. Here are a couple of extra graphs just to show you what I mean...

For someone who started with the firm in May

For someone who started with the firm in November

Are you in too much energy credit?

Always first check your meter readings are up to date. Then look at whether you're in energy credit or debt and compare it with the graphs.

The perfect time to do this is in May, when a normal situation would be to have little energy credit or be a month or so in energy debt – so if you've a lot of credit then, it's too much.

Alternatively look in November, when you'd expect to be at most two-and-a-half months in energy credit. If you've far more, it's likely too much (though it does depend on how prices are moving).

Yet even if it's another time of year, it should give you a scale of whether you’re likely to be in credit or debt, but always add a month or so wriggle room – don't try to make this too overfine a calculation.

Too much credit? Get your cash back

Condition 27 of energy suppliers' licences is that they must take reasonable steps to ensure Direct Debit levels are fair, and to explain the level they're set at. So, just to reiterate:

- Make sure the bill is based on an up-to-date (smart) meter reading
- Ensure your Direct Debit is about right

Then call (or do it online if your firm has it) and ask why you're in so much credit – give it a chance to explain. Though the rules state that if too much credit has accumulated and a customer asks for it back, suppliers must refund it – or clearly explain why not. If they don't, you can make a formal complaint, and if it rejects it, escalate it to the Energy Ombudsman for free, which can adjudicate. Below are the big firms' policies…

PS: Firms set Direct Debits based on current prices, not future, so right now when we know prices are likely to drop in July, that's not factored in, but will mean you likely need even less credit.

Energy firms' refund rules

Energy provider Does it automatically refund any credit?
British Gas No. If you're in credit at the end of your 'plan year', it'll reduce your Direct Debit. You can ask for a credit refund at any time; it is not automatic.
EDF Energy If you're in credit at your account review, it will be used to reduce your Direct Debit. You can request a refund but you must give an up-to-date meter reading.
E.on Next You can ask for a credit refund – it is not automatic.
Octopus Energy You can request a refund at any time, but you need to give a meter reading and have been billed in the last 14 days, or have a functioning smart meter, so it can check the refund won't leave you likely to get into significant debt on your account.
Ovo Energy You can request it if you have more than £5 in credit and give a meter reading.
Scottish Power You can set your refund preference to ‘Always Refund’ on your online account or by contacting them, any credit will then be automatically refunded if it is available.
Utility Warehouse You can have credit automatically refunded at your annual account review, but you must give an up-to-date meter reading.

Some firms do promise automatic refunds if your credit's too high on the anniversary of you joining, but others require you to check.

In too much energy debt?

If you owe far more than you should for the time of year, your energy Direct Debit is likely too low. That may seem like a win in the short term, but it's storing up trouble for the future.

Fail to deal with it and you'll likely see a hugely hiked Direct Debit in the future, forcing you to catch up, or a huge one-off bill if you switch elsewhere (that's if you're allowed to; big energy debt can stop you switching, even if it'd cut your bill).

So don't delay – speak to your energy firm about increasing the Direct Debit. If it's unaffordable, again, speak to your energy firm and see our Struggling to pay energy bills? help guide for more.