How we manage Direct Debits at Octopus Energy


There’ve been a few headlines recently about energy Direct Debit payments so we wanted to share some detail about payments at Octopus.

How we work out what you should pay, how we put you in control and check your balance is on track throughout the year. And how payments have changed in the energy crisis.

If you've not got time for a long read, here's the gist:

  • We never increase your payment just for the sake of it. Overwhelmingly, customers owe us more money than we owe them. At the end of this Winter, the average customer owed us £214.
  • We run thorough, frequent ‘health checks’ on your account to make sure your balance is where it should be and your payments are at a good level.
  • The reason we change Direct Debits is to make sure you can cover the cost of the energy you use and get to a healthy balance – we explain a bit more how we work out what’s healthy later on.
  • You’re always in control of your payments, and can change them online or by talking to our team. Over 70% of our customers feel more in control of their DD since joining us.
  • Customers in credit on our Flexible tariff have had their Direct Debit increased by 59% on average since the price cap changed in April – in line with how much our tariff has gone up

It’s taken a vast and careful effort to calculate and develop a fair way to manage payments and automatically keep balances in check for millions of customers. We know how important it is to get it right. We process 3 million payments a month – that’s around 100,000 payments a day – and we take the responsibility incredibly seriously.

Our guiding principles are:

  • Keep customers clearly informed to make sure they don’t build up unexpected debt
  • Ensure customers are always in control: it’s your money

How do you calculate my DD payments?

When you join us, we take the unit rate of the energy tariff you have with us, and multiply it by how much energy we expect you to use over a year.
We get the information about the energy we expect you to use from your meter via an industry process, and we also look at the meter reading you give us. We also add on your daily standing charge. We use all this information of these to calculate your annual energy costs. Then we divide that into 12 to get your monthly Direct Debit amount.

We do it this way so customers can pay the same amount year-round. Typically, people use 50% more energy in Winter than in the Summer but prefer a fixed monthly amount to smooth this, and reduce surprises. This is your base amount.

We then work out where your balance is expected to be in April - If you’ll have less than five week’s credit at the beginning of April, we’ll work out the difference and spread this over 12 months as a balance-adjustment and add this amount to your suggested monthly payment.

We then email you to tell you any proposed changes and give clear options - and give you plenty of time to tell us if you’d rather not make the changes. If your emails bounce, or if we don’t have an email address for you, we’ll send by post instead.

How do you know how much energy I’m going to use over a year?

Our forecast is always improving, and gets more and more accurate the more regularly we get your meter readings. Of course, estimates will be wrong - we all use more or less than usual from time to time due to weather, lifestyle, home appliances, etc - but we always aim for a “neutral” estimate.

How do you check I’m paying the right amount?

We run thorough, automated “health checks” for every account, covering many details. On payments, these checks make sure:

  1. 12x your monthly payment equals your annual energy costs
  2. Your account balance is healthy (this could be credit or debit depending on the time of year, but we aim for a week’s credit at the start of April (so nearly a month’s debit by the end).

If our health check reveals that your monthly payment or balance is higher or lower than it should be, it could mean you’re likely to start building up debt or credit. We’ll email you recommending a change to your Direct Debit amount, breaking down our calculations, and letting you know when your new payment will start. We normally make sure it’s at least three months since the last change to ensure you’re in control. We’re really clear about this:

You’re always in control of your Direct Debit

You can easily change your Direct Debit, either online or by talking to our team. If your account’s in debt, or you want to drop your Direct Debit by a substantial amount, we do ask that you speak to our team first. But really, it’s your money, you know your finances and energy consumption best, so we want you to be in charge.

Over 70% of our customers feel more in control of their Direct Debit payments since joining Octopus. Over 90% feel at least equally in control.

There's one notable set of customers who don't fall into these standard health checks and its customers we've taken on en masse from another supplier, for example in a 'Supplier of Last Resort' process or an acquisition. It's a complex process to get these customers into our usual payment cycle so we handle them a bit differently – we'll blog about this separately.

What do you consider a ‘healthy’ balance?

No matter when we’re doing the health check, what we’re looking at is what your account balance is going to look like in the upcoming April. We think of “healthy” as a week’s credit at the start of April (so nearly a month’s debit by the end).

If it looks like your balance will be lower than that in April, we’ll create a 12 month plan to get your account back on track. Note that we don’t rush to get your account in order by April, which could cause big bill shocks; we smooth things out over a year, and readjust your Direct Debit back down when you’re back on track, with the aim that by the following April, your account will be in good shape.

Say we did a health check in September and could see your balance would be -£600 in April. We’d adjust your monthly payment by £600/12 = an extra £50 a month for the next 12 months so that by next September you’d have a balance that would be on track to be a week’s credit at the start of the following April (i.e nearly a month’s debit by the end). You’ll then be back on track.

We also always give the option to make a one time payment for any customers keen to get back on track straight away.

There are lots of checks we do around this to make sure this process is as simple, smooth and unobtrusive as possible. We won’t suggest changes more than once every three months, or if you’ve already made changes to your own payment plan in the last three months. We also won’t make the change to your Direct Debit if the difference is less than £5 a month.

And crucially again, you’re always in control. We’ll suggest a new amount and let you know why we’ve set it that way, but you can adjust it.

Why might my Direct Debit payment change?

We try to keep your DD to one fixed amount, but of course it may need to change from time to time for a few reasons:

  1. When your tariff changes. If the rates and charges of your energy go up, your annual energy cost will too. Tariffs have risen a lot over the energy crisis with wholesale energy costs jumping up to many times higher than they were a year ago.
  2. When your energy consumption changes. If something changes in your home (from more people to new appliances) or with the weather (for example, a colder than average Winter) you’ll use more units of energy than we forecasted for and payments might not be enough to cover your charges.

Following the new price cap coming into effect at the start of April, a lot of customers will have seen their Direct Debit increase to ensure they aren’t falling into debt.

How much have DDs changed since the April price cap?

Energy tariffs have gone up a lot recently in line with unprecedented wholesale costs (you can read more about why here). We’re doing what we can to help everyone, and we’re offering the cheapest variable tariff from any major supplier, £50 below the price cap.

On average our Flexible tariff price has increased by 59% – this % is a bit larger than some other suppliers, who’ve mostly increased their price by 54%. That’s because we’ve have always been below the price cap – we’re now just a little closer to the cap than before meaning our % increase was larger than other suppliers (but we still cost less).

Flexible customers whose accounts are in credit have seen an average Direct Debit increase of 59% — in line with how much our tariff has increased.

Why might my DD have gone up more than average?

If you’re using more energy than expected, or if you’re in debt, we’ll factor that into our calculation of how much you should pay too. It could mean a larger increase to your Direct Debit to help counteract any debt building and cover higher energy usage (on top of accounting for your higher energy tariff).

If you’re coming off a fixed tariff. If you were on a fixed tariff with prices locked in from before the energy crisis and recently moved to a variable tariff, there could’ve been a much larger jump between these tariffs – meaning your DD needs to go up by more too.

Understanding your balance

Is it normal to be in credit or debit at different times of year?

You may see that your account has a positive balance in the Summer and a negative balance in the Winter. It’s generally because you’re paying the same amount year-round, but using less energy in Summer and more in Winter.

This is fairly normal, within reason – and is the case for a lot of our customers. At the end of March, the average customer ‘owed’ us £214. At the end of last Summer, we owed the average customer around £36.

If you think that your credit is too high, you can always ask for a refund (we just ask for a meter reading so we can bring your charges up to date). If you think you’re building too much debit, you can increase your payments or make a one-off payment online too.

And at the same time, as always, we’re still doing our checks along the way and will make recommendations if we think you need to change your DD.

Is my online account balance always up to date?

The balance you see on your account doesn’t include any charges since your last bill, so the best way to see your accurate balance is to submit a meter reading (or check your monthly statement if you have a smart meter).

Published on 8th May 2022 by:

image of Helena Patching

Helena Patching

Data Scientist

Hey I'm Constantine, welcome to Octopus Energy!