Does your business credit score affect your energy deal?

A credit score evaluates your business on a scale ranging from 1 to 100, with higher scores being more favourable. Businesses with higher scores are considered to be in a more robust financial position. Those businesses holding a score of 40 or higher are expected to gain access to more cost-effective energy contracts within the market.

Similar to a personal credit score, your business’s credit score is determined based on risk factors. If your business encounters financial difficulties or has a history of missed or late payments on business loans or credit cards, it will be perceived as a greater risk by lenders, resulting in a lower credit score.

In deregulated utility markets, a business supplier’s main role in the energy market is to procure gas, electricity, or water at wholesale rates and subsequently deliver these utilities to their customers through established contracts.

However, in scenarios where a customer declares bankruptcy or fails to pay their bills, the supplier remains responsible for settling the wholesale charges incurred by their customer’s consumption of electricity, gas, or water. This situation can lead to substantial financial losses for suppliers.

The COVID-19 pandemic and the have intensified the significance of credit risk for suppliers, especially due to the heightened rate of business closures during this period.

What else do energy suppliers consider?

Energy providers routinely assess a business’s Standard Industrial Classification (SIC), which serves as a categorization system for various types of businesses.

Certain sectors, such as pubs and restaurants, carry a greater level of risk compared to others. This heightened risk is attributed to the frequent turnover of management within these industries.

Credit risk pertains to the risk taken on by a business energy or water supplier when delivering services to a customer. Credit risk is influenced by credit exposure and the likelihood of default.

Credit exposure quantifies the potential loss that the energy supplier may incur if a customer fails to settle their bill. The credit exposure rises in proportion to the customer’s electricity and water consumption.

Business electricity tariffs typically carry a significantly higher value compared to business water tariffs, which amplifies the importance of credit risk assessment for suppliers.

In the competitive landscape of business electricity and commercial gas providers, different strategies are employed to manage credit risk within the energy sector. It is a common practice among energy providers to adjust their pricing to account for the credit risk associated with a contract.

At Utility Bidder, our business energy comparison service employs energy experts who conduct an initial credit assessment. This assessment is aimed at securing the best available energy deals and prices tailored to your business, factoring in both its industry and credit score.

Why do I need a prepayment meter?

Prepayment meters are accessible to both domestic energy and business energy customers and operate similarly to pay-as-you-go mobile phones. To replenish your meter, you can use a key, card, or, in some instances, a mobile app.

This system provides a level of assurance to your energy provider since you are prepaying for the energy before its consumption. Nonetheless, it’s important to note that prepayment energy tariffs tend to be more costly compared to standard tariffs.

While you switch energy suppliers it doesn’t have a direct impact on your credit score, it’s worth noting that a credit check is typically conducted as part of the switching process, potentially affecting your score.

However, this shouldn’t deter you from considering a switch, as any impact is usually minor and similar to what occurs when you apply for credit elsewhere. It’s important not to make numerous credit applications in a short period.

Any temporary dip in your score should naturally correct itself, typically within up to six months (provided there are no rejections). The potential savings from switching often outweigh this minor consideration. What matters most in terms of switching and your credit score is ensuring that your new electricity supplier accurately bills you and that you promptly settle your energy bills on time.

While there are indeed ‘no credit check’ energy companies in the UK, it’s important to note that due to the nature of business electricity and gas contracts, all energy companies will typically assess the credit history of your business. To identify an energy contract that aligns with your business’s specific needs and situation, it’s advisable to engage in a discussion with our energy experts. Get in touch on 01858 410000.

While switching energy suppliers directly doesn’t have a direct impact on your credit score, it’s important to note that a credit check is typically conducted as part of the switching process, which could affect your score.

However, this shouldn’t deter you from considering a switch, as the potential impact is usually minor to what happens when you apply for any form of credit. It’s advisable not to make numerous credit applications within a short timeframe.

Any temporary dip in your credit score should naturally correct itself, typically within up to six months. The potential savings from switching are often well worth it. The crucial aspect to monitor regarding switching and your credit score is to ensure that your new supplier bills you accurately and that you promptly settle your business gas and electricity bills.

Small businesses often encounter credit-related challenges when seeking business water or energy tariffs. To enhance their creditworthiness, small business owners can consider implementing the following measures:

1. Complete Comprehensive Accounts: Filing complete financial accounts on Companies House provides credit rating agencies with more data to assess your company’s creditworthiness.
2. Timely Tax Payments: Ensuring the punctual payment of tax payments helps maintain a clean record of unpaid bills, which can positively impact your credit score.
3. Stay Current with Companies House: Keeping Companies House updated and meeting all statutory filing deadlines is essential. A well-maintained public record of your company reflects positively in the eyes of credit rating agencies.
4. Limit Credit Applications: Minimize the number of credit applications you submit. Although it may be tempting to seek multiple loan offers for the best deal, excessive applications can hurt your credit score.

A bad credit score can cause constraints on your choices when switching energy providers. Certain energy suppliers may decline businesses with low credit scores, while others may reduce the tariffs available to your business.

For businesses with lower credit scores, energy providers willing to accommodate them may adopt alternative measures, which could involve:

1. Premium Charges: Including additional fees or premiums on your energy services.
2. Security Deposit Request: Requesting a security deposit as a safeguard against potential non-payment.
3. Direct Debit Payment: Requiring payment via direct debit for your energy usage.
4. Prepayment Meter Installation: Installing a prepayment meter as a means to manage and secure payments for energy usage.

To uphold a good credit score, it’s crucial to keep an eye on your financial matters, and making the switch for your energy can be a helpful step in achieving that goal. By switching through Utility Bidder, you could potentially reduce your commercial gas and electricity expenses by hundreds of pounds,

To start your business energy comparison, you can enter your postcode above or contact our energy experts at 01858 410000.