Prepayment Meter vs Direct Debit: Which is Better?

When it comes to paying energy bills, the majority of consumers opt for one of two ways. The first is direct debit, which more than 56% of consumers have chosen as their payment solution, according to OFGEM. Although much less prevalent, a significant number, around 5.9 million, choose to pay in advance using a prepayment meter.

While there are ups and downs to both these methods of payment, as an energy supply company, it’s important to not only be able to explain the difference to your customers, but also to be able to help them make an informed choice. Here’s what you need to know about prepayment meters versus direct debit.

Fundamentally, there is no difference in the energy supply itself. As a customer, you still pay a per unit rate for the energy you use, whether it’s gas or electricity. The difference comes down to how you pay.

With a direct debit payment, the energy supply company will agree a set amount that the customer pays each month. The money comes directly from their bank account, with no action on the customer’s part.

On prepayment meters, on the other hand, customers pay in advance for the energy they want to use. They can decide how much to top up by, as well as how and when to do it, much like running a pay as you go mobile phone.

The question of which is better will come down to the specific customer. For many customers, direct debit offers a hassle free, set and forget style of managing their energy needs. However, for others the ability to stay in control day to day is a benefit they enjoy. Let’s take a look at some of the pros and cons of each.

• Set it up and no further action is required on the part of the customer
• Customers are unlikely to be disconnected
• Paying by direct debit often opens up discounts or cheaper tariffs

• It is possible for the customer to under- or over-pay, leading to a debt or credit on the account
• Customers can incur bank charges if the direct debit attempts to draw on an account with not enough funding
• Some customers may fail a credit check and not be able to pay this way

In general, a direct debit agreement suits someone with a regular income who is comfortable with the money coming out each month. However, both supplier and customer should be on the ball with checking the payments set up are neither too high nor too low, thereby causing a problem with the balance.

• Customers choose when and how much to pay for their energy
• There’s no way to get into debt as all energy supply is paid for in advance
• No credit check is required

• Customers could be disconnected if they can’t afford to top up
• Top ups require physically going to a shop, or having a smartphone with a top up app
• The best energy deals on the market are often not available to these customers

While prepayment meters can suit some people who want full control over their energy spending, they are normally not the best solution for those looking for a great deal.

According to Martin Lewis , prepayment meters can make typical bills £200 to £250 a year more expensive. As such, they should only be recommended to those who have a distinct need for them.

Also read: Ofgem lays out plans for energy suppliers to automatically refund surplus credit

Electricity Smart Card

A prepayment smart card is an alternative to a key and sends your latest information through to your supplier when topped up.

A Smartcard prepayment meter has several advantages:

•  It’s an easy way to budget for electricity – no unexpected bills.
•  It allows your tenants to stay on supply while repaying any money owed.
•  It allows you to monitor tenant consumption without visiting the property.
•  CAP tenants Electricity with embedded digital controls.
•  Stop Electricity theft.

As previously stated, a regular customer with a consistent income who is looking for a great deal will almost always benefit from a direct debit tariff. The reduction in administration costs and the regularity of payments often means you’ll be able to offer them a greater range and value of tariffs.

However, there are some commitments that you, the energy supply company , need to be sure you can make when placing a customer on this type of tariff. Letting the customer build up a large credit balance or a large debt is irresponsible, so it’s important to seek meter readings and make adjustments to direct debit amounts as early as possible.

If you have a customer who is regularly in debt, encouraging them to switch to a prepayment meter is one way to help them, and you, manage their debt more effectively. The meter can be preloaded with the debt, meaning that every time they top up, a portion of the money is used to pay back the debt.

However, there are some people who should never be placed on a prepayment meter, or at least not one which will disconnect in the event of credit running out. Vulnerable people, those with young children and those with health issues who rely on their energy supply to keep them well need to be protected.

Suppliers should also familiarise themselves with OFGEM guidance for the installation of prepayment meters. Much has been done of late in regard to keeping prepayment customers safer. This includes restrictions on the amount they can be charged, measures to avoid self-disconnection and self-rationing, as well as changes to warrant uses and charges.

Further Reading

Pre-payment meters vs Standard Credit meters: Pre-payment customers collectively overpaying £390 million a year on energy bills

Ofgem to introduce new rules to help customers struggling with energy bills- what does this mean for energy suppliers?



British Gas to pay out £1.73 million for prepayment failures

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