Business Energy Debt

Businesses have a number of day-to-day challenges to contend with, the ever-changing current economic climate being just one of them. Remaining competitive is more important than ever and attracting new clients and customers will be a top priority.

In addition to this, companies must make sure they are on top of their finances. This can prove extremely difficult when factoring in the various internal and external factors at play. Failure to manage these will result in debt, firms that can’t repay their debt may be forced to go into liquidation.

One considerable challenge that businesses in the UK face which isn’t often portrayed is energy debt. Business energy prices can be high and are a large expense for any company, no matter what its size. Being in energy arrears can cause a lot of pressure for managers.

There are hundreds of businesses who find themselves in business energy debt every month with their current or previous supplier. These aren’t isolated issues; they only seem that way because few discuss them openly. Most firms who find themselves falling behind on their payments do not know where to start. Fortunately, there are solutions out there. We hope to provide a better understanding of business energy debt and help your company free itself from the red.

What is business energy debt?

To begin, we must define what ‘business energy debt’ is. Energy debt is like any other debt. It’s a cost that your business gets behind on when previous bills have not been paid, or the stipulated amount wasn’t paid. It is also commonly referred to as business energy arrears. You can be in debt for both commercial gas and electricity.

Most companies will use far more energy than a typical home customer, meaning that these debts can reach thousands of pounds over a period of time. Once the figure reaches a certain amount, suppliers may demand immediate payment. For small businesses and start-ups, this can be particularly difficult.

What causes energy debt?

Businesses can fall into energy debt for a variety of reasons with their supplier. New businesses are not the only ones that have to grapple with this issue. Here are some of the main reasons why business energy debt exists:

Billing and metering issues

The number one reason why small firms end up with business energy debts is primarily due to inaccurate billing and metering, according to the Money Advice Trust. It was fairly common for these smaller companies to receive inaccurate bills in the early stages of their contracts, only to find out later on that they were underpaying and were suddenly unable to manage the larger repayments.

Even with a fixed tariff contract, suppliers calculate the cost through estimations instead of actual meter readings. This results in lower monthly payments set up at the start, only for these same bills to skyrocket later down the line.

Declining revenue

If a supplier does bill a company correctly, a business can still end up in energy debt with its ever-changing revenue. Here are some reasons why a business’ revenue may be in decline:

  • Changes in consumer purchasing habits
  • Increased competition within the market
  • Seasonal changes

Personal circumstances of each company

A smaller business that has its day-to-day operations reliant on one single person puts it at a higher risk of being in financial trouble. Business owners may be away from their work for an extended duration due to any of the following personal circumstances:

  • Death within the family
  • Long term illness
  • Being involved in an accident in or outside of work
  • A relationship breakdown

How can I stop energy debt?

Prevention is better than the cure. The most responsible way to ensure your business does not end up in energy debt is to try to prevent it from happening to begin with. Here are some of our recommendations to help protect you and your company:

Make the switch to a fixed rate contract

To begin with, you will want to avoid being moved over to a deemed rate or rollover contract. According to industry regulator Ofgem, compared to a negotiated tariff, a deemed rate contract is 80% more expensive on average.

Anyone who is on a deemed contract should make the switch to a new tariff or supplier. You won’t have to pay for an exit fee when leaving your deemed rate contract either, making it easier to transition to a far more competitive business energy plan.

See how much your company is able to save with our gas and business electricity comparison tool.

Understand what you should and shouldn’t be paying

You shouldn’t automatically assume that you are required to pay everything you see in front of you on the bill.

A supplier cannot charge a microbusiness for energy that was consumed more than 12 months prior, according to new legislation that was introduced in 2018. However, there is an exception to this – if you have prevented the supplier’s ability to obtain an accurate meter reading, they will still be able to pursue you for this amount.

Another thing to consider is that it is possible for a supplier to incorrectly calculate your bill. You may be charged for something you are not actually making use of. Look at your bill more closely and if anything does seem unclear or suspicious, you should contact your supplier straightaway to bring this to their attention. Hopefully any incorrect charges found can be addressed quickly and help to lower your annual bills.

Check out Utility Saving Expert’s guide on understanding your business energy bill to learn more.

Ensure your details are correct

Always ensure the details any supplier holds on you and your business are up to date and correct. Having the wrong contact information could mean you go a whole 12 months before finding out that you are now in business energy debt. This can make things difficult to manage if your budget hasn’t factored these costs in.

Payment details should also be set up in the right way. Again, a supplier may only get in touch after a number of months have gone by to chase you up for the missed payments. This can make it challenging for a company to catch up with any repayments.

Considering the above, it’s advisable that you double check that all of your details are accurate before agreeing to a new tariff. This will help prevent these issues from happening, meaning less hassle later down the line.

What can I do if I have business energy debt?

The world economy is constantly changing every day, placing businesses in a state of flux. This means that even if you have the most comprehensive business strategy outlined, it is still possible to be in energy debt at some point.

Failure to pay does allow a provider to cut off your gas and electricity supply. With this in mind, business energy debt should be seen as a high priority, especially if it affects productivity and prevents you from generating revenue. Fortunately, there are steps your firm can take to help you should you find yourself in this scenario.

Contact your supplier at the first instance

You should contact your supplier in the first instance after becoming aware that you are in commercial energy debt. Talking through your individual circumstances and explaining why you weren’t able to make the payments on time can often be the best way to find a suitable solution. The majority of commercial suppliers will work with you to set up an affordable repayment plan to cover what is owed. After all, this is in everyone’s best interest.

In addition to this, you will need to demonstrate that you are still able to pay for your current gas and electricity supply as well as any arrears accrued.

Renegotiate your payment plan

If you have agreed to a new repayment plan and are still finding it difficult to make these payments, ask your supplier about whether these payments could be reduced and repaid over a longer period of time. Remember that the longer the period, the more interest a supplier may charge. You should also note that if a supplier passes the business energy debt onto a debt collection agency, your credit rating could be negatively impacted. Always try to come to a reasonable agreement with the supplier first before things escalate and get out of hand.

From the supplier’s perspective, they will want to be sure that you’re able to pay for your current energy supply. If they are able to understand that the current repayment plan will limit your ability to make payments, they may be persuaded to change the terms.

Escalate the case to the Energy Ombudsman

A provider will not always agree to the changes that you have suggested. If you believe the provider is being unreasonable or treating you unfairly and the situation has not been able to be resolved within eight weeks, you do have the option to escalate things further. In this situation, you can put your case forward to the Energy Ombudsman Services.

The Energy Ombudsman Service has been approved by Ofgem to independently handle disputes between consumers and suppliers. They will be able to investigate your complaint and make a recommendation based on how it should be appropriately resolved.

Managing a business, no matter what its size, is tough work. There are limitless considerations and decisions that company owners have to make on a daily basis. Staying in the black isn’t always straightforward with ever-changing market factors at play. However, making smarter decisions can at least help you keep on top of your energy bills.