The Blog

Prompt payment discounts: why we all lose out

Hear the words ‘prompt payment discount’ from a power company, and most of us assume it means they’re offering customers some sweet discounts for paying bills on time, right? It’s there in the name, after all.

But, unfortunately, the technicalities around prompt payment discounts are a little murkier (and sneakier) than most folks realise. In fact, the Government’s response last month to the Electricity Price Review (EPR) finally recognises that prompt payment discounts are misleading, as well as unfair to those who can’t pay their bills on time. The companies who offer these discounts have been put on notice to change their ways and, as far as we’re concerned, this can’t happen soon enough.

Here at Flick, we’ve been super vocal about the issues within the electricity market and the ways that they contribute to unaffordable electricity prices - and prompt payment discounts are just one example of where the industry is falling short.

OK, first things first - what’s a prompt payment discount?

Some power companies offer their customers a discount for paying their bill on time, which they call a prompt payment discount. As the name suggests, the customer will have a specified amount deducted from their bill total if they pay before a certain date.

That’s a good thing, isn’t it?

It sounds nice in theory, right? But the reality - and what we’re seeing here in NZ - is something a little more deceitful, where power companies appear to be offering prompt payment discounts on the back of power prices that have been set higher in the first place.

That means customers think they’re receiving a cheaper power price by paying on time, but the ‘discount’ just means they’re actually paying the real tariff, thanks to already-inflated pricing. Ouch!

Wait, what?!

Yep. For real. Most power companies will set their power prices and then add on the ‘discounted’ amount to make it appear like customers are paying less (for example, they might add on 10% to their set fees). Basically, customers who receive a prompt payment discount are actually just paying the power company’s initial set prices, which begs the question… is it a discount at all?

Wow. So there’s actually no discount on offer?

Nope. It’s just marketed to look that way. And the real kicker is that those who don’t pay on time are suddenly having to pay a significant amount that’s well above and beyond the set power prices. In our opinion, it’s nothing short of a sneaky marketing ploy that’s misleading, unfair, and just plain wrong.

How much does missing out on the so-called prompt payment discounts add on to a household’s bill?

Generally between 10% and 26% - an amount that’s excessively high, and doesn’t match the actual cost to retailers of a late bill payment. And for many Kiwi households, particularly those on low incomes, paying bills can be a real, genuine struggle. Prompt payment discounts only add to the strain, by adding a sizeable late payment penalty fee on to their bills and putting our most vulnerable households even further into debt. And that’s not cool.

So what’s the Government going to do about it?

The EPR Panel recommended that regulations be passed to prevent retailers from using prompt payment discounts within 6 months of the EPR announcement (so by May 2020).

In the meantime, the Energy Minister recently sent an open letter to power companies asking them to stop prompt payment discounts themselves, before she goes down the regulation path.

They’ll still be allowed to charge late payment penalties in order to help them recover costs of late payments, but the fees will need to reflect that actual cost to the business of late payments (which is a fraction of what’s currently being charged).

Will customers who pay on time lose out if power companies get rid of prompt payment discounts?

In theory, no. All that should happen is that power companies will start showing customers their lower headline prices up front, without the confusion of different ‘discounts’ being thrown in. Unless power companies decide to use this as an opportunity to charge more for their power, the folks that pay on time will be no worse (or better) off when prompt payment discounts are axed.

So what does Flick want to see happen from this change?

Well, first of all, we’re rapt that the EPR Panel and the Government are taking notice of what really matters: people, rather than profit. For a long time now, the electricity industry has been propped up by a model that supports deceitful and unfair behaviour. And it’s behaviour that’s served to benefit business while keeping consumers at the bottom of the rung. So, needless to say, we’re stoked to finally see a crack (albeit a forced one) in that tough exterior!

Our hope is that getting rid of prompt payment discounts will see the start of an industry that’s much more people-focused, offering more choice of retailers, fair and transparent pricing, and the best in customer care. Now, doesn’t that sound flickin’ good?

He aha te mea nui o te ao

What is the most important thing in the world?

He tangata, he tangata, he tangata

It is the people, it is the people, it is the people.