Credit Scores and Business Energy

Is Business Energy Related to Credit Score?

You might not immediately make the connection between credit ratings and business energy, but believe us – there is one.

The credit rating of your business makes a big difference to which energy suppliers you can go to and what rates you can secure.

In this guide, we’ll explain why your credit score matters when it comes to energy and how to boost your credit rating.

Why do energy suppliers check your credit rating?

Energy suppliers check your credit rating because they want to know how much of a risk you could be in defaulting on your payments.

Business energy isn’t cheap and is used in large quantities and so suppliers are acutely aware that a failure to pay will have a significant impact on their own business.

Energy suppliers also look at something called a SIC (Standard Industrial Classification) which is used to classify different kinds of business.

Some sectors are classified as being a higher risk than others, for example pubs and restaurants. This is because they can often have a high turnover of management and that uncertainty worries suppliers.

The cost of recovering money owed by businesses can be a long drawn out and expensive affair, so some suppliers are very careful about the risks they take when it comes to supply offerings.

Unlike in the domestic market, energy suppliers can pick and choose which business customers they want and are free to stipulate that they will only accept businesses that they believe will be a low credit risk.

The impact of a bad credit rating on your business in terms of energy

Having a less than perfect credit rating and/or being in an industry that’s deemed to be high risk can mean that your choice of energy supplier and energy tariff can be limited.

Some energy suppliers simply won’t accept businesses with a poor credit history or a poor credit score, others might prevent you from being able to access their cheapest offers.

Even if they do accept a low credit business, the energy suppliers might:

• Charge an additional premium,
• Ask for a security deposit,
• Insist you pay by Direct Debit,
• Install a pre-payment meter (the energy version of a pay-as-you-go mobile phone).

What you can do about it

Leaving aside taking steps to improve your credit rating, there are a number of things that you can do make sure you get a good deal on your business energy.

It’s a good idea to compare business energy prices from a variety of suppliers, but make sure that they know about your credit situation so they can tailor your quote accurately.

By using Business Juice we will be able to advise you on which suppliers are more likely to accept customers with a poor credit history.

Even businesses with low credit scores have choice, whilst the choice might not be between the top deals, it will still pay to shop around for the best possible deal in your circumstances.

We can help you do this.

How to improve your business credit rating

by Experian

Max Firth, Managing Director of Experian’s Business Information Services has this advice on improving your business credit rating.

“Experian’s research has shown that there is a worrying lack of credit awareness amongst the UK’s small and medium sized business community.

“Around 61 per cent of businesses have never checked their own credit score, so have no idea how other businesses see them.

“Credit scores provide an assessment of a business’s financial health, with a low score implying that a business is more likely to fail.

“It is based on information from third party suppliers, so getting a copy of the credit report may highlight lingering issues with the business that they were either not aware of or thought had been resolved.

“In many cases, low scores can simply stem from a lack of detailed data about the business or a failure to file complete or accurate information at Companies House, rather than underlying financial insecurity, so filing fuller accounts will proactively help businesses to make a more accurate credit picture of their business available.

“Factors such as a location change, the move from non-limited to limited status, or mergers and acquisitions, can also influence credit scores.

“Taking simple steps such as putting the business on the map by registering with a credit reference agency or a business directory will ensure the business does not fall below the credit score radar. Businesses that fall below the radar will find that they struggle to gain access to credit and services.

“The timely filing of accounts with Companies House can also have an impact on the credit score, as late filing of accounts can signify a struggling business. Firms should also pay their invoices on time. It sounds obvious, but a worsening payment trend is a key indicator of a deteriorating cash position, and this could impact the credit score.

“Owners of micro or newly formed businesses should also keep an eye on their own personal finances and ensure they have a copy of their personal credit scores too.

“In cases where the financial data of a business is scarce, consumer data is a valuable indicator of the business’s likely commercial integrity. Subject to consent, lenders are able to consider the personal finances of a business’s directors or proprietors in commercial lending decisions, provided the company is independently owned and has fewer than four directors or proprietors.

“By engaging proactively with credit reference agencies, firms will be better equipped to take action to boost their score and improve the external perception of their business. It is also important for businesses to monitor their credit score on a regular basis to ensure it continues to reflect their situation accurately and to be able to take action to resolve any issues that are highlighted.

“If a business does not check its score then the only way it will find out that there is an issue that needs resolving it is when it loses out on a contract with a potential new customer, is refused materials from a new supplier or is turned down for finance. By then it could be too late.

“Businesses that want a copy of their commercial credit report and credit score should contact Experian on 0844 481 8888.”