Businesses face plenty of challenges in the current economic climate. They need to ensure they remain competitive enough to attract new customers and clients in an ever-changing market.
On top of that, companies need to keep on top of their expenses. Failing to do so can lead to debt, and in some cases, those that can’t repay their debts are forced to shut down.
One of the major challenges to UK businesses that isn’t often discussed is the problem of energy debt. For thousands of them, it’s a significant source of financial pressure that can be difficult to shake.
“We talk to dozens of businesses every day who are in some sort of debt to their current or previous supplier,” says Wayne Heap, Director of Service at energy experts Love Energy Savings. “It’s a common issue, but because few people talk about it, many don’t know where to start when they find themselves falling behind on their payments.”
Thankfully, help is at hand. We break down what business energy debt is and how you can move your company into the black.
Understanding business energy debt
What is business energy debt?
Also known as business energy arrears, energy debt is a cost accrued when a business has not paid a previous bill or did not pay the regular amount.
Over a long period of time, these debts can reach thousands of pounds and suppliers may demand immediate payment when it reaches a certain amount. This can spell disaster for small businesses.
What causes energy debt?
There are a number of reasons why businesses can fall into debt with suppliers. It’s not just new businesses that struggle.
Here are a few of the most common ones:
1. Billing and metering issues
The Money Advice Trust found that, for small businesses, billing and metering issues is the number one cause of energy debt.
One of the most common issues found was that businesses were underbilled in the early stages of their contracts. When suppliers agree fixed contracts with businesses, they agree costs based on an estimate rather than actual meter readings and set up low monthly payments as a result.
Later, they require the difference be paid, and businesses often don’t have the resources to cover outstanding charges.
2. Declining revenue
Even when billing is set up correctly, the revenue available to businesses to make their payments is constantly in flux.
Reasons for declines in revenue include:
- Changes in consumers habits — Consumer values and technologies mean businesses have to continually adapt to keep up, and some get left behind. Newsagents, for example, have seen significant declines in sales of newspapers in the wake of the digital and green revolutions, and takeaways with no online presence struggle to be discovered by new customers.
- Seasonal changes — Some businesses offer products that are in low demand at certain times of year. Ice cream parlours, for example, are likely to see much less footfall in January than in July.
- Increased competition — Smaller businesses can be undercut by large companies moving in nearby or by the success of an online competitor.
3. Personal circumstances
Small businesses are more at risk to financial problems if their day-to-day operation relies heavily on one person.
Personal circumstances like a death in the family, a relationship breakdown or a long-term illness can mean that business owners are away from their work for an extended period of time, losing potential revenue as a result.
How to prevent energy debt
The best way to get out of business energy debt is to prevent it from occurring in the first place. Here are some of the easiest ways in which you can protect yourself.
1. Switch to a fixed contract
One of the traps many businesses fall into is being put on a deemed contract. Deemed contracts are on average 80% more expensive than negotiated contracts (Source: Ofgem).
If you’re currently on a deemed contract, you can switch your contract to a different tariff or a different supplier. Suppliers of deemed contracts aren’t able to charge you a termination fee, so you don’t need to worry about budgeting for the switch.
See how much you could save by switching your energy provider with our business electricity comparison tool.
2. Find out what you need to pay and what you don’t
You may not be required to pay everything that you think you do.
For example, legislation introduced in 2018 dictates that suppliers cannot bill mico-businesses for energy that was used more than 12 months prior. The only exception to this is if you’ve hindered the supplier’s ability to retrieve meter readings.
It’s possible that your supplier is charging you for things you don’t use. Look through your bills and highlight anything that’s unclear; speaking to your supplier about it can highlight any incorrect charges that could reduce your bills.
For more information, see this guide from the Citizens Advice Bureau.
3. Double-check your details
Ensure that your payment details are set up correctly. Often it can take a few months for a supplier to get in touch about missed payments, by which point you’re already in debt.
If your contact details are incorrect, you could go the best part of a year before you learn about your debt, which might be unmanageable.
Double-checking all of your details before you agree to a contract means that none of these problems occurs and you don’t miss payments unknowingly.
What you can do if you have business energy debt
Most markets are a constant state of flux, so even with the best preparation, you might fall into energy debt at some point.
Suppliers are entitled by law to cut off your gas or electricity if you fail to pay. For that reason, business energy debt should be considered a priority debt.
Thankfully, there are a few steps you can take to help you.
1. Speak to suppliers as soon as possible
As soon as you become aware of your energy debt, contact your supplier and fully explain your circumstances. Give any relevant reasons why you aren't able to pay. Most suppliers will try to give you time to pay what you owe in the form of monthly repayments.
You’ll need to show that you can pay for your ongoing fuel as well as contributing to arrears. Suppliers may agree to increase your monthly payments to offset the debt.
2. Renegotiate payments
If you’re already on a repayment plan but are struggling to afford it, discuss with your supplier whether they could lower the payments and extend the repayment period.
Suppliers need to know that you can pay ongoing bills as well, so if you stress that the current repayment plan will limit your ability to do so, it may persuade them to change the plan.
3. Escalate the matter
Occasionally, suppliers may not agree with your suggested changes. If you believe your supplier has treated you unfairly or your query hasn’t been resolved within eight weeks, you can escalate your case to the Ombudsman Services: Energy.
The Ombudsman will investigate your complaint and make recommendations about how it should be sorted out.
Escape high energy bills to help your business thrive
Keeping your business free from debt isn’t always easy, but by making some smart decisions, you can at least make sure your energy bills are more than manageable.