Bill smoothing: What it is and what you can do

Personal Finance Writer · 17 September 2021
If you’ve ever had that ‘uh-oh’ feeling when a bill arrives in the mail, bill smoothing can ease the financial pain. It’s a simple strategy that helps you smooth cash flow while taking the sting out of big bills.

It seems like there are constant demands on our budget, but unlike weekly expenses such as groceries, some bills like electricity and gas, only crop up each quarter. It sounds good in theory, but the reality is you could face a nasty surprise when you see how much is owing. If that sounds like a familiar scenario, bill smoothing can be a handy money management strategy.

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What is a bill smoothing plan?

Bill smoothing works on the idea that it’s easier on our finances to pay small amounts often  rather than manage a large lump sum in a single hit. Several utility companies have realised this, and many now offer  bill smoothing plans, also known as ‘regular payment plans’.

In essence, a bill smoothing aims to prevent a sudden spike in your household expenses by giving you the option to set money aside on a regular basis – either, weekly, fortnightly or monthly, to go towards a major bill. It can spare you the horror of bill shock, and put an end to the scramble for cash when a supersized quarterly bill arrives.

What is a smoothing payment?

A smoothing payment is the regular payment you make towards the cost of your utility bill under a bill smoothing plan. How much you make in a smoothing payment depends on your utility provider.

With AGL for instance, you can choose to spread your estimated yearly energy costs over smaller, regular instalments. If you racked up a bill of, say, $1,200 over the previous year, your bill smoothing payment could work out to about $100 monthly. As AGL points out, your regular bill smoothing payment can also factor in issues such as ongoing price changes.

The size of your smoothing payment can also hinge on the frequency of payments your utility provider offers – assuming they permit bill smoothing at all. Weekly or fortnightly payments are likely to be a lot smaller than monthly payments. And for those times of the year when you need extra cash – like the festive season, you may be able to take a break from your regular bill smoothing payments, and pick them up again when you’ve got a bit more spare cash.

Is bill smoothing worth it?

On the face of it, bill smoothing has the potential to help with your cashflow. When you sign up for bill smoothing, the payments are typically made by direct debit, so they are automatic. It can be a way of putting major household expenses on autopilot.

Of course, it’s still important to have adequate funds in your account when the bill smoothing payment falls due. Matching payment dates with your regular pay days can help here.

Fortunately, bill smoothing comes with an element of flexibility. If you find that bill smoothing isn’t really working for you, you should be able to cancel the arrangement, and return to the normal billing cycle of quarterly payments.

The downsides of bill smoothing

While bill smoothing can make large, infrequent bills more manageable, there are potential drawbacks you should consider. Let’s take a look at the main downsides:

Not all utility providers offer bill smoothing: According to Canstar Blue, several  energy providers offer bill smoothing including AGL, Origin and Red Energy. If your utility provider isn’t on the list, you may still be able to use bill smoothing as it may be offered under a different name. That said, not all utility providers offer bill smoothing.

You could be missing out on interest on savings: Bill smoothing payments are made before you receive your utility bill, not afterwards. So what you’re really doing is tucking cash away into your service provider’s account – rather than your own, ahead of the bill arriving. With a bit of budgeting and planned saving, you could potentially make the exact same payments into a savings account of your own, and earn interest on the money until you need to withdraw it to pay a bill.

Unused credits may be rolled over to the next payment cycle: If your utility bill turns out to be less than the total bill smoothing payments you’ve made, you may not receive a refund for the difference. The unused credits may be held over and deducted from your next bill. This can make you feel as though you should stick with the same provider to get your money’s worth of unused credits rather than shopping around to find a better deal.

You may not be eligible for bill smoothing: Utility providers may only offer bill smoothing to customers with a track record of paying their bills on time.  If you have fallen behind with previous bills, you may not be eligible for bill smoothing.

Bill smoothing with Centrepay

If you receive government benefits from Centrelink, you may be able to use Centrepay to make regular payments from your benefits. This involves setting up regular payments through your monthly account to manage a variety of bills including phone and internet, rent and mortgage payments, utilities and even school fees and medical bills. This free service is only offered to customers of Centrelink-approved businesses.

Sub edited by Milan Cuk.

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This content was reviewed by Digital Editor Amanda Horswill as part of our fact-checking process.

Nicola is a personal finance writer with nearly two decades of industry experience. A former chartered accountant, who holds a Bachelor of Commerce and a Master of Education degree, Nicola has contributed to several popular magazines including the Australian Women’s Weekly, Money and Real Living.

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