Everything You Need To Know About Bill Smoothing

6 April 2017
“Bill shock” is a common problem for Australian families – but using a bill smoothing strategy can help reduce financial stress.

What is bill shock?

Bill shock is the negative reaction a customer feels when they receive a bill that contains unexpected charges or an unexpectedly high amount to be paid. It’s a phrase commonly used about phone bills in the telecommunications industry, as well as electricity bills and water bills.

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A recent Canstar Blue survey of 5,000 Australian adults found that, quite worryingly, 1 in 4 electricity customers struggle to pay the bill on time. No doubt a number of other large periodic costs, such as car registration, car insurance, rates and other utilities, also cause that sinking feeling.

One way consumers have found to help avoid bill shock is by using bill smoothing.

What is bill smoothing?

Bill smoothing is a way of paying smaller amounts more frequently to the provider who is billing you, rather than paying one large bill a few times a year. This can be done in two ways: a formal payment plan with the service provider, or informally making more frequent payments on your own.

With the formal bill smoothing structure, the provider creates a payment plan where you pay a portion of an estimated bill at regular intervals. It works by calculating the total estimated cost of your energy bills for the next 12 months and then splitting the amount into equal weekly, fortnightly, or monthly payments.

In order to calculate this, your provider will look at your energy usage over 12 months and compare you to customers in your area with similar usage patterns. Rather than paying quarterly bills throughout the year of varying amounts, you would pay the same amount each week, fortnight or month.

Then if your actual usage is higher than what you’ve already paid, you would receive a bill to cover the difference at the end of that quarter or year. Likewise, if your actual usage is less than your bill smoothing payments, you would be “ahead” on your next bill.

CANSTAR’s Former Editor-in-Chief, Justine Davies, spoke to Channel 9 News about the pros and cons of bill smoothing, as well as who offers it.

Source: canstar

Who offers bill smoothing?

A formal bill smoothing structure is common among energy retailers. At the time of writing, the following energy providers offer bill smoothing:

  • AGL
  • Click Energy
  • Diamond Energy
  • Power Direct
  • Origin Energy
  • Red Energy

Some energy retailers are also offering “fixed cost” plans, which calculate a tailored monthly cost for customers based on how much energy they’ve used in the past and how they heat and cool their home.

How to do your own bill smoothing

If you find paying small amounts regularly an easier form of budgeting, you can easily do your own “bill smoothing” by setting up regular BPay deposits towards your usual large bills. That way, when you receive your actual bill in the mail, there should not be too much left to pay.

Case study on bill paymentsJulie’s Smart Plan

Julie’s car registration is $800 per year, billed annually. Rather than pay one lump sum amount, Julie has set up a BPay direct debit of $30 per fortnight, so that by the time she receives her registration notice in the mail there is only around $20 left owing. She has also set up payments of $40 per fortnight and $20 per fortnight to cover her electricity bill and phone bill respectively.

Bill smoothing with Centrelink

If you receive benefits from Centrelink, you can use Centrepay to make regular payments from your benefits. You can easily set up regular payments through your monthly account. Bills that you can pay via Centrelink include:

  • Rent and mortgage payments
  • Phone and internet bills
  • Electricity, gas, and water
  • School fees and expenses
  • Child care
  • Home services
  • Rental payments
  • Medical services

Not sure where to start with getting your expenses under control? Setting a solid budget is a great help so that you know what expenses you’re likely to have falling due –and when!

Check out some tips to spring clean your debts and some tips on getting out of credit card debt, not to mention some easy ways to save money.

Keep in mind that failing to pay your bills on time may have a negative impact on your credit score. Having a poor credit score may make it more difficult to get a loan or credit product, as lenders are likely to see you as being a risky borrower. To find out more about credit scores, including tips on how to improve your score, visit our credit score information hub.

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