How does your business credit score affect your energy deal?

On the face of it business energy seems simple. You find a supplier, sign up to a deal and begin your contract. But there are a range of factors than can affect the type of deal offered. The size of your business, the type of industry and its location all play a part.

However, there’s one other factor that is often overlooked – your business credit score. Your business credit score will determine which energy suppliers you can choose from, the type of deal available and how you’ll pay for your consumption.

This means that the best energy supplier for one business, might not be the best fit for another. In this guide we’ll take a look at business credit scores and explain how they can influence your energy deal.

What is a business credit score?

A business credit score is a score given to a company based on a set of criteria to determine their creditworthiness. It provides an indication of how well a business is performing financially and is typically used by customers, suppliers, or other interested stakeholders to assess risk.

Business credit scores are usually provided by credit reference agencies and scores typically range from 1 to 100. A lower score indicates a business is high risk, whereas a higher score signifies lower risk. There are a number of different credit reference agencies; each agency has their own unique algorithm and so scores can sometimes differ depending on the one used.

The score provided is derived from several different factors within your business accounts, such as your balance sheet, cashflow or other financial information. As with a personal credit score, if your business has a poor credit history, is highly geared or struggling with payments then you will pose a risk to lenders and this will be reflected in your rating.  

In a similar vein, if you’re a newly established business then credit reference agencies will have limited information to base their assessment on. Without an established credit history they will assume you’re a bigger risk and this will be reflected in your score. In such circumstance’s lenders could opt to use your personal credit score, although this depends on what you’re applying for.

You can check your business’s credit score with a number of different agencies including Experian, CreditSafe or Equifax, alternatively give Big Energy Group a call on 01423 225 333 – all we’ll need is a few basic details.

What factors influence your business credit score?

According to Experian, the information used to calculate your score is gleaned from various sources; up to 800 different variables are considered and so figuring out what factors influence your score isn’t always easy.

Some initial first areas to consider are outlined below:

• Your outstanding balances on debt.
• Level of debt, relative to credit available.
• Current level of business borrowings.
• Size of your business.
• Length of time trading.

Keep in mind that every credit reference agency is different and so it’s best to check with individual providers for further details.  

Why does your business credit scores matter to energy suppliers?

When you agree an energy contract, your supplier will go to the wholesale market and purchase enough energy to cover your expected usage over the term of your contract. As you consume energy, your business will pay for this in line with the tariffs and charges set out in its energy contract.

Since suppliers typically reserve all the energy for your business upfront, if your business ceased trading or failed to pay its bill then your supplier would lose money. On this basis suppliers take risk into account before deciding to supply energy. Suppliers therefore use credit scores to assess the stability of your business to ensure you can keep up with your energy bills.

Every energy supplier bases their decision(s) on different criteria, meaning there is no definite credit score suppliers look for. Business credit scores of 35 or above are normally advantageous and allow access to a wide choice of business energy tariffs. This level of choice means energy suppliers compete against each other by offering you cheaper rates.

On the flip side of things, a poorer credit score will result in fewer options at inflated rates. As with business finance there are specific energy products for bad credit, but they’ll typically charge you a premium for your energy. Expensive energy rates can place additional pressure on your business and exacerbate existing financial problems.

Regardless of your business credit score, if you’ve not switched supplier for a while, then you your energy supplier might have placed you on expensive out of contract rates. These rates can be more than double the typical market rate and so your energy bills could be higher than they need to be.

If you’re in this situation then it’s important that you find the best energy deal available for your business. As an energy broker, Big Energy Group has access to a plethora of tariffs. Our energy experts will work with you to find a deal that’s built for the way you use energy – and what you’d like to spend. Simply call 01423 225 333 or email hello@bigenergygroup.co.uk and our team will be on hand to save you money.

How does your business credit score impact on energy prices?

Before an energy supplier will agree to supply your business, they will conduct due diligence on your business. A good credit score will allow your business to have its pick of the crop, whilst a poorer score could restrict choice.

If your business falls into this category, has a weak financial history, or operates in a ‘high-risk’ industry, then you could find that your choice of energy supplier and tariff is limited. Some suppliers may even elect not to quote low scoring businesses, whilst others may charge an added premium to reflect the level of extra risk. Businesses deemed particularly high risk could be asked to provide a security deposit or may even be required to install a prepayment meter.

Ultimately every supplier is different and where one supplier is conservative another may be more open. No matter what you do, it’s important that you shop around to find the best energy deal for your business.

What else do energy suppliers use to determine your risk?

Whilst your business credit score is important, it’s not the be all and end all. Suppliers will try to be as holistic as possible before providing you with a business energy quote. Along with your credit score, they will look at a range of factors including the size of your business, the industry it operates in and how many sites it has. They will also consider your location, your expected consumption and the length of contract required.

Suppliers additionally use ‘standard industrial classification’ numbers, otherwise known as SIC codes to establish risk. These codes are made up of five digits and are used to classify businesses by the type of economic activity in which they are engaged. Along with general economic conditions, suppliers will use ‘SIC’ codes to consider the state of your business’ industry - industries with seasonal variations or high failure rates will be considered riskier than others, which may impact on the type of energy deal offered.

What steps can you take to improve your business credit score?

To be eligible for the most competitive business energy deals, you’ll need to have a good credit score. There are no quick or guaranteed ways to improve your score, but building a good credit history and developing good financial habits usually help.

If your business’ credit score is not as good as you’d hoped, then here’s few steps you can take to improve it:

• Pay bills on time – Bills can be a headache for many businesses, but you should always strive to pay them promptly to improve your credit score. This is not only good for building the reputation of your business, but also your credit rating.
  ‍
  Many businesses choose to set up Direct Debit payments to make sure they never miss a payment. If you’re struggling to pay your bills, then it’s always best to speak with your creditor(s) to agree a payment plan.
  
  
• Limit credit checks – Be careful about making lots of applications for credit, as these could leave a series of ‘footprints’. Each footprint combines to form an overall picture of your business’ financial health.
  ‍
  Making lots of these applications for credit could be worrying for suppliers and could negatively affect your score. A poorer score could cost your business a good energy tariff and may result in you paying a premium for your energy.
  ‍
• Correct any mistakes – With lots of different factors contributing to your score, it’s important to look out for mistakes on your credit file. Payments may be wrongly marked as missed, credit balances may be incorrect or linked accounts may be wrong.
  ‍
  Correcting any errors can quickly boost your score and keeping an eye on what accounts are open in your name can help protect your business against fraud. If anything looks wrong contact the credit reference agency responsible as soon as possible.
  ‍
• Register your business – Be sure to register your business with a credit reference agency so they know your business exists. If your business is below the radar then it may affect your chance of getting credit as well as limiting your options.
  ‍
  If you’re a start up business or have a limited credit history, then you’ll also need to keep an eye on your personal finances. Personal finance information is sometimes used if business information is missing or unavailable and so shouldn’t be ignored.

You can find out more information on improving your credit score here.

Overall business liquidity is key to maintaining your business’ credit score and the ability to make cost savings, even small ones will help make a difference. A bad credit score could make your business less appealing and may stifle your ability to grow

Switching business energy is one of the easiest ways to make savings and could knock thousands off the cost of your business gas and electricity bills – money that could be reinvested or used to pay off other debts to help boost your business’ credit score.

You can normally switch your energy when your current deal enters it’s switching window, which is typically up to twelve months before its end date. Once you’re ready to switch give Big Energy Group a call on 01423 225 333 - we’ll be on hand to help you scour the market and find your business the energy deal it deserves.

What to do if you’re in debt?

If you’ve been in debt to your existing supplier for more than 28 days, then you won’t be allowed to switch until any outstanding bills are paid.  

If you’re struggling to pay your business energy bills, then try not to worry. Our team have worked with business of all shapes and sizes and can help you work out the best way to arrange a repayment plan with your supplier.

What else can your business do?

If you’ve recently switched, then there are still other ways to save and boost your credit score. A recent report The Department for Energy and Climate Change suggests the average business could reduce its energy bill by 18-25% by simply being more energy conscious. The energy saving trust can provide further advice and insight relating to energy efficiency for businesses.

Part of running a successful business involves ensuring it maintains a good track record, and so we hope this guide helps you to keep an eye on your credit rating and save money. Remember, the higher your business credit score, the more robust your business appears – and the more likely you’re able to access the best business energy deals on the market.

About Big Energy Group

Big Energy Group is a privately held, British-owned energy brokerage with an established track record of helping clients successfully navigate the energy market. The company has offices in Harrogate and the Tees Valley and serves more than 400 businesses across the UK.  For more information, please visit bigenergygroup.co.uk.