Energy suppliers will always obtain information about companies and individuals prior to agreeing an energy supply contract.
They will use one of several credit agencies to establish a business’s credit worthiness. Credit agencies use a number of sources in their research. These include financial accounts from Companies House, payment data from company suppliers and business registration details. If a more detailed review is needed, then web mining, news and media, telephone and other information are used. So, it is not just financial information that can be important, but your overall reputation.
DID YOU KNOW?
A poor credit score leads to higher energy tariffs?
DID YOU KNOW?
Failure to submit a company return will affect your credit score
If you don’t know what your current Credit Score is, the EAG can provide you with a fully up to date Credit Assessment for your organisation.
The agency then generates a report of your company’s credit history and financial affairs to produce a Credit Rating which energy suppliers will use to decide whether to extend credit to you. When an Energy Supplier starts delivering gas and electricity supplies to you they are effectively providing you with credit, and the amounts can add up rapidly.
Business credit scores range from 0 to 100. 75 or more is considered excellent, 50 generally a pass and anything below is a failure. However, energy suppliers will use their discretion if the score is close to the pass level.
Prior to providing you with an energy contract, a supplier will establish your current credit score. Energy suppliers have dedicated credit control departments who will make the final decision as to whether to accept you as a customer. Sometimes, they will decline you completely whilst other times they will demand a security deposit or insist on a higher tariff to cover their risk.
Note:Â Even if you are currently with a supplier, it is no guarantee that they will renew your contract if your credit score has deteriorated.
Some suppliers will not accept customers from within entire sectors. Pubs, fast food restaurants and even care homes can be excluded from time to time.
Energy suppliers continually evaluate risk by taking the general economy into consideration and not just individual companies.
Please note:Â Some credit rating services estimate that 1 in 3 businesses are denied the cheapest rates simply because they fall below the required minimum credit score threshold!
Conclusion
A company’s credit score is very important, not only for energy contracts but for all sorts of reasons, including obtaining loans for development, taking on contracts and securing new suppliers.
Below are some simple pointers to ensure your company isn’t precluded at Stage One:
- Credit checks can end in failure if the credit check has not been carried out correctly. If you fail a credit check and feel your credit rating is good, then we can help you challenge the result.
- Be sure to use your correct legal name and provide your legal address. A supplier will search using the name you have given them and if, for example, you file your accounts at Companies House under another name this will not be picked up.
- Make sure you complete your Company Return. This is an annual requirement to update information such as your current registered address, changes in directorship or change of activity. Failure to submit your Company Return will result in your credit score being downgraded.
- When filing your Accounts make sure they are filed in good time. Accounts shown to be filed late will go against you.
- For sole traders and partnerships, the credit search is run against the individual. Make sure that you provide ALL your personal details.
- If there has been a change of ownership/change of name within the business make sure the supplier knows about it.
- If you have had a change of status, for example, became a Limited company 6 months ago and not yet filed any accounts, make sure the supplier knows this and that they can search against your personal name if required.
- If your credit rating is fine, but the supplier says you have failed, they may be satisfied with a copy of your interim accounts, provided they come from your accountant
- If you genuinely have a problem with a poor credit rating, make sure you let us know so that we can channel your contract to a company that may be more sympathetic.
- Multiple credit checks can adversely affect your rating. Setting up a lot of new supplier accounts, all of whom will credit check the business, can cause you trouble and should be avoided.
- Be aware that, if you are taking on new premises where the previous occupant has become insolvent or experienced credit difficulties, you can inherit the bad credit history of that address
- Beware when external debt, such as money owed to banks, is much higher in proportion to shareholder’s equity. You could be penalised by credit agencies.
- Having a positive working capital will also affect your credit score. Credit agencies will consider the difference between your current assets and your liabilities or, more simply, what’s coming in and going out of your business on a daily basis.
Building a good credit score should be a fundamental objective for all businesses, just as it is for individuals. By observing the above points, you could quickly improve your credit score and help your business to grow.
DID YOU KNOW?
A poor credit score can add 5% or more to your energy costs!
Remember, energy suppliers will offer best prices to those with a good credit rating!
Start-up companies without any credit history will have a relatively low score and suppliers will
be reluctant to offer you their cheapest prices as they have no guarantee you’ll be able to keep up payments.
Some Energy Suppliers do accept a low credit business, however, they might:
- Charge an additional premium (the cost of an insurance premium to cover the additional risk)
- Ask for a security deposit.
- Insist you pay by direct debit (although some suppliers offer a discount for this arrangement).
- Install a pre-payment meter.