It can be hard to access desirable contracts for companies with low business credit when it comes to business energy.
You may not be able to benefit from rates that businesses with similar load profiles can. Equally, term length may be limited to short, low risk periods by suppliers.
Often, those with low business credit scores struggle to gain access to a contract at all. Suppliers all have individual “hard stops” on certain sectors and scores.
Low business credit: what’s the big deal?
As we saw during the energy price crisis of recent years, energy suppliers must manage their risk and exposure very carefully. Close to 50% of UK suppliers went out of business during the crisis, because they could not hedge their energy purchases/sales effectively and became insolvent.
To appreciate a supplier’s position completely, you need to understand how the market works. Read our free whitepaper for the full lowdown. In short, energy suppliers must purchase energy from the wholesale market at a price they know can be re-sold competitively in the retail market with a margin. Some suppliers don’t actually generate their own fuel and their entire existence is based on this finely balanced margin. It was these suppliers who struggled most during the crisis.
One of their main risks is selling energy on the retail market which is not paid for on time, which is in particular focus when working with large-consumption business customers. If a business doesn’t pay its bills, there is a knock-on effect on the supplier’s cashflow and its ability to purchase the next “block” of energy to service its customers.
Suppliers must also meet increasingly onerous regulations to keep their trading license. Financial robustness is a key component of this. Reducing financial risk by refusing to offer contracts to businesses with low credit is one way of maintaining this robustness.
What affects my business credit score?
A business’ credit score, much like a personal one, is influenced by various factors that reflect its financial health. Some key factors that can affect a business’s credit score include:
- Payment history: Consistently paying bills on time demonstrates financial responsibility and reliability, positively impacting scores.
- Credit utilisation: The amount of credit a business uses compared to the total credit available, known as credit utilisation ratio, can affect its credit score. High utilisation suggests higher risk, while lower utilisation indicates responsible credit management.
- Length of credit history: A longer credit history provides more data for assessing creditworthiness and may positively impact the score.
- Credit mix: A diverse mix of credit accounts may be viewed more favourably than relying solely on one type of credit.
- New credit: Opening multiple new credit accounts within a short period may signal financial distress or increased risk, potentially lowering a credit score.
- Public records: Bankruptcies, judgements, and other public records indicate financial difficulties or legal issues.
- Credit inquiries: Multiple inquiries within a short period may signal a high level of credit-seeking behaviour.
- Financial performance: Factors such as revenue, profitability, cash flow, and business assets can indirectly influence a business’s credit score.
My business is new and has no trading history
Because there are no records upon which to judge your creditworthiness, suppliers will view your business the same was as if you have low business credit.
Because of the high failure rate of new businesses, this represents a similar level of risk to suppliers, who are essentially giving you a line of credit with your energy contract.
What can my business do to get a contract?
Options are limited for businesses in this scenario. As if opening a new enterprise does not feel like enough of a leap of faith, you could offer a personal guarantee against your contract to reassure suppliers of your commitment to fulfilling payments.
Obviously prioritising building a strong credit score in the early years of your business is important, to make this process easier when you come to negotiate your next energy contract. You should clearly prioritise payments which affect your score.
Third Party Intermediaries (TPIs), such as ourselves, can prove to be essential partners for businesses in this position. They possess leverageable relationships with suppliers, large customer portfolios and expert market knowledge to ensure that you can access a contract which suits your position, including if your credit score is limiting options.
TPIs often have dedicated quoting and contracting processes for newly opened businesses or those with low business credit scores. We have even helped businesses in sectors which are undesirable for suppliers access contracts by building cases in partnership with our customers and achieving rates they would otherwise have been unable to reach.
This is just one of the benefits of working with a TPI. Speak to us today for a free, no-obligation discussion and quote on your business energy procurement. Fill in the form below or give us a call.
