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Paying by cheque for utilities? That’ll be £100 please

New Which? Money research has found that paying energy bills by cash or cheque could be almost £100 more expensive a year than paying by direct debit. Can this extra cost really be justified?

Earlier this year a groundswell of public support for the cheque prevented it from being consigned to the scrapheap for good. Happy days then? Well, not if you’re actually planning to use them.

Cheques might still be in existence, but the cost of paying your bills with them appears to be ever increasing. Our investigation into payment methods showed that energy customers paying by cheque are being penalised for the privilege.

The difference in price between paying by quarterly cash or cheque and by monthly direct debit can be high – we found it could reach an average of £98.60 over the course of a year.

Direct debit cheapest for energy

Energy companies normally offer a discount to people who pay by direct debit, since it guarantees payment and makes your account easier and cheaper to manage.

If you pay by cash or cheque, some companies do offer prompt payment discounts if you’re able to pay on time. But these won’t be nearly as high as the ongoing discounts given to direct debit customers.

When it comes to payment methods, research by charity Age UK shows that use of direct debits to pay utility bills decreases directly with age, particularly among the over 70s. But it’s not just older people – many younger customers, especially those in lower-income households, also feel that direct debit gives them less control over what’s going out of their bank account.

Cheque users paying over the odds

We’ve written several times about cheques here on Which? Conversation and the response has always been the same – there are countless situations in which the cheque is the most suitable method of payment and people shouldn’t be unfairly penalised for using them.

While it may suit the energy suppliers to manage direct debit accounts, many of us still prefer more traditional methods. Some simply have no choice.

It’s vital that energy companies develop fair and inclusive systems that ensure all of us are given a fair deal. Any extra charges need to reflect the actual costs to suppliers, and I’m not totally convinced that this is happening.


It is right that those paying by cheque should pay more, because paper-based payments are costly to process and not environmentally friendly. However, the additional cost should be a reasonable fixed amount per cheque, not a percentage difference in price of the utility service being paid for. Furthermore, customers paying electronically, e.g. by BACS, FPS or CHAPS, should not be surcharged at all, as it costs utility companies no more to accept other forms of electronic payment compared to direct debit. Many consumers do not feel comfortable with direct debits, and they should not be penalised by utility companies if they wish to pay by other electronic methods that put the customer, and not the utility company, in control of their bank account.

I strongly support the point made by nfh. Yes I can see paper processing may cost a bit more, but Direct Debit is just a method for giving your supplier an interest free loan. Why is BACS/FPS never recognised by utilities and other suppliers as a low cost payment method, or is that a silly question?

They probably argues that folk why pay by cheque do not get charged more ..but folk who pay by DD get charged less…lol .
I do think it is unfair that there should be a large differential between those who pay by different methods . What I would like to see is a means of entering readings monthly and you then pay what amount is generated by those readings .

Lucia says:
23 November 2011

I listened with great interest to BBC Breakfast as they were talking about how people, especially older people, who do not pay their energy bills by direct debit end up paying more money.

In today’s society of democracy and supposedly CHOICE many organisations, but in particular Energy Companies are DISCRIMINATING against people who do not want to pay by Direct Debit.

I (along with no doubt millions of other people) who am in my 50s choose not to pay by direct debit, but to pay the energy bills every quaterly. I pay promptly and I use the automated telephone paying method. NOT A PAPER CHEQUE.

Also, as I run a tight budget every month via the automated service I provide the Energy Company with my meter readings so that I do not receive an estimated bill.

The reason I do not pay by direct debit is so that my money stays longer each month in my current account earning me a very small interest, but at least still earning me an interest. However, the more money that goes out of my account each month by direct debit then there is less capital earning me interest.

Thus for older people, even an extra pound earnt in interest is important to them.

In addition, Energy Companies, particularly NPower, waste a lot of paper by sending their customers reminders more than a week before their quaterly payments are due, rather than perhaps three days after the bills were due.

Furthermore, particularly with NPower, if you complain to a Customer Service Advisor, it is recorded on their computer system, supposedly, and then about a week or so later you receive an automatic computer generated letter thanking you for the information (more wasted paper). But the letter does not tell you what you complained about and nothing has ever come of any of my complaints.

The amount of money wasted by Energy Companies sending replies that do not mean anything and other useless information could be saving the consumer a vast amount of money, especially older people who need to keep warm in winter.

Why are Energy Companies not giving discounts to ALL their customers that pay promptly whether every month by direct debt or quaterly by cheque, telephone or over the counter when these companies are making huge profits?????

Sally Spencer says:
25 November 2011

I used to pay by direct debit but didn’t set it up when I moved house about three years ago. I’m extremely glad I didn’t because I’ve just spent the last three months trying to get British Gas to sort out a problem with a quarterly electricity bill that came in at over £5,000! Heaven knows how they would have calculated a monthly direct debit payment on that basis. I simply don’t trust them to charge me the right amount any more and, as I always pay on receipt of the bill, I don’t think I should be penalised for paying by cheque.

The real issue is not paper vs paperless payment- it must clearly cost more to process a non electronic payment than a cheque, though by how much is debatable. No, the real issue is being charged a penalty for not allowing the supplier to effectively pick your pocket at will with a direct debit mandate. I have never had a dd set up that has not sooner or later caused problems and it’s a funny thing, the error is never in my favour. There should be no price difference between an electronic payment and a dd and the penalty for paper payments, if not zero, should be a fixed small charge reflecting the actual processing cost, not some increase in the unit cost of the service provided.

Heh, the reason that I refused to pay by DD to Scottish Power instead of quarterly cheque was that TWICE over the past 10 years they got my Economy7 and Daytime units the wrong way round, resulting twice in bills for £3,000 for summer quarters!! On the first occasion they only agreed to even look into it because of my persistence and finally getting my MP involved, otherwise I’d have carried on paying £12,000 annually for my leccy!!!! On the second occasion they dealt with it faster, but they’d had it the wrong way round for 2 years plus & just noticed late – eventually instead of my owing them £3,000 it transpired that they owed me £1,200 and I got a cheque!! refund a month later.

So you can see why I wouldn’t trust them with a DD – they’d have rapidly wiped out my bank account and my life savings, and I imagine getting that money back would have been a helluva lot harder than dealing with them when they thought that I owed THEM …!!

I have since just changed to OVO, and they get excellent ratings for customer service, so I’m happy to arrange a DD for them – and take my own readings in future! BTW, half the £200 savings I’ll make from doing this is in the form of no longer having to pay Scottish Power’s outrageous ‘Daily Service Charge’ of over £0.40p daily – on top of their other standing charge. Daily Dis-service more like…

DavidB says:
25 November 2011

Processing cheques is labour intensive and it is right that those who pay by efficient cost-effective methods (eg Direct Debit) should not have to subsidise those who choose to pay by cheque. Charges for cheque payments should, however, be a true reflection of the actual additional payment processing costs.
About 30 years ago I was reluctant to pay anything by DD as retailers were not required to specify when payment would be taken. Today, however, I have no hesitation in using DD as you are told in advance of the date when payments are taken and have the DD Guarantee as a simple recourse if a retailer gets it wrong. DD is a secure method of payment, is easily set up (does not require the internet!) and puts the account holder in full control. In contrast, cheques are much more open to fraud – your name, branch, account number and sort code are all printed on the cheque which is seen by several inputters. You can never be certain that cheques put in the post will arrive and be cleared by due date.
Cheques do not carry any sort of consumer protection. Otherwise there is the DD guarantee, Debit Card Chargeback, and Credit Card Section 75. Thankfully I was able to convince my elderly father of the benefits of paying by DD particularly in saving money on utilities.
Which? needs to do more to spell out the pros and cons of the different methods of payment.

I pay all but one of my regular bills by Direct Debit, that is around 20 currently, and have done so for many years – I’m 70. so far I have not had any problems with DD BUT I check my bank statement EVERY month, very carefully. I actually believe DD is safer, cheaper, more secure and certainly less trouble than remembering all the bills and when they have to be paid. It seems perfectly reasonable to me that customers should be charged less if it costs the company less to collect their cash but I also agree that any extra charged for paying by another method should reflect the actual cost.

Payment is payment and there should be no price difference on how the bill is settled.

Sheila Hamilton says:
25 November 2011

I agree that payment is payment and there should be no difference in the charge so long as you settle the bill promptly. However, after years of inertia, I did attempt to make savings earlier this year when I tried to organise a direct debit with British Gas. Instead of writing a cheque for the amount – something like £460 – as usual for gas only for the three month winter period, I set up the direct debit with the understanding that while this bill would be paid, no further cash would be taken for another three months. Next bank statement, what do I find? Yes, two payments of £460 taken within days of each other. Infuriated, I rang British Gas to cancel the direct debit and demand repayment of the second £460. The company complied quickly, but it destroyed any trust I had in its efficiency. I certainly don’t want to give it access to my bank account for a variable amount.
Scottish Power now inform me that I am wasting £65 a year by not paying them by direct debit for electricity. So basically, they are charging me – someone who has always paid within a couple of days of receiving the bill – £16 a cheque. I pay Visa electronically as soon as I receive the bill – what is wrong with giving us a discount for that?

fully agree with nfh. the principle of direct debits where the supplier has the last word over my bank account is wrong. i pay in full each quarter by bank transfer on time andstill manage to recieve remindersthrough the post on the due date. they must be wasting money sending these out.

Big companies as usual ride roughshot over the individual. Yes it will be marginally cheaper for them to collect payment by direct debit but with the profits they make they really do not need to penalise those people that wish to pay by cheque or any other way. To say it is very costly to process non electronic payments might be true to some extend but not everybody can pay electronically so do they need to be penalised?? To say paper bills are non environmentally unfriendly is correct but it would be more environmentally friendly to stop the tonne of junkmail one receives every year before complaining about 12 bills per year.

Annoyed says:
28 November 2011

I support Direct Debits in principle and believe the method should be cheaper as it is less costly to process. BUT I believe companies are profiteering. I ended up cancelling my British Gas one as over 2 years they consistently overestimated the amount even though I repeatedly informed them of my average spend (which they could clearly see). They often had ₤00’s of MY money sitting in their account earning interest.

The fundamental cost is the same however the bill is paid– the establishment of how much energy has been consumed. The diferent cost of the method of payment is a very small marginal cost when compared with the cost of providing the energy. It therefore follows that variation of tariff based on method of payment should be prohibited. here be one fixed price however the method of payment. The present differentials are a fidle and a confidence trick.

Scottish Power tell me they’re charging me £106 a year more than if I paid by D/D, is this a record? I certainly don’t want to pay more than a small fixed fee for the convenience of deciding when my money leaves my account. On the responses about getting a discount for D/D as an upfront loan etc, British Gas used to do an advance-payment discount which I used regularly, until they decided unilaterally to withdraw it, and moved me onto their quarterly cash account, which is presumably the most expensive. BT similarly, moved me from a legacy payment scheme onto their most expensive “plan” (evenings and weekends free, only) and we paid £100 or so more, in some quarters, until I got them to put us onto their more reasonable “plan” (seems to be all calls free, for £44 a quarter plus line rental etc). What about an obligation to move customers to their calculated cheapest tariff, rather than wasting all our time with this product churn? Then they could concentrate on the supply-side of their business, security of supply, environmentally-responsible generation etc.

Why has nobody mentioned standing orders? They do not seem to be an option these days, it’s
dd, cheque or tlephone payment. For donkeys years I have paid gas, electricity and community charge (and previously BT until I moved to another supplier) this way. By this method I know how how much and when the money leaves my account each month and the company gets its money regularly. Can this really be significantly more expensive than DD (especially as they are getting a free loan for a couple of months and no interest on any excess payment)? BG notified me this summer that it was ending the standing order arrangement and urging me to change to DD because it’s cheaer for them. After discussion with somebody in their customer services my SO carries on as they cannot cancel it! Neither can they vary the amount, that is in my control, and any surplus I build up in summer can be set against winter bills.
I use DD only reluctantly as I want to be in full control of my account and like many of the other comments I beIieve they will make mistakes, not in my favour, which will take an age to rectify in the meantime playing havoc with my finances.
So, no, I don’t think there should be a penalty for paying by methods other than DD and bring back the standing order option.
End of rant

Re Standing Orders. These are started and controlled by the customer and are no different from paying a bill in full or part so they have never gone away .a similar method is a “Regular Payment” arrangement on your banks online account . The difference with DD’s is that the Energy Company ( in this instance ) controls them ( although the customer can cancel them at any point if they wish with the consequences that brings) So if you want to pay your energy bill in full or in part you can use SO’s or Regular Payments or a single ( or series of ) online payment (s)

R.George says:
23 December 2011

“Unfair card surcharges are being banned” the Government announced today. A great achievement for the campaign by “Which”! Let’s pull out all the stops to get the unfair treatment of cheque payers by energy and other utility companies banned in the same legislation. They have us over a barrel.

I recently received a letter from my electricity company to tell me that if I changed to direct debit, I would receive 6% off my bill which they said could add up to a yearly saving of £75. Whether people pay by direct debit or cheque, meters have to be read and bills sent to customers. £75 is a totally unreasonable charge for processing 4 cheques per year.

Yes, it’s unfair, but I think the banks have been too successful in making younger people think that paying by cheque is a thing only a few oldies do. The main point though is that the energy and other utility companies, and plenty of other big British organisations, particularly privatised utilities, treat people unfairly in all sorts of ways. A wider campaign for fairness in treatment of customers, including the right to pay any way and only be charged either the same price, or a varied price relating only to the (regulated) cost of administration, would be more likely to benefit people beyond the cheque payers. It would also free young people from the tyranny of variable direct debits and unpredictable overdrafts and bank charges, at a time in their lives when they may not have enough income or experience to overcome occasional cost overruns.