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

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.

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...