Even the most well-established businesses are not immune to fluctuations in the market. The COVID-19 pandemic has proven to be a curveball for new and established business owners.
Businesses that have weathered the storm have thousands of pounds worth of debt. Business energy debt is one of the most common types of debt that business owners accrue. It might not seem like gas and electricity plays a vital role in the wellbeing of your business until the lights are turned off.
Suppliers have the right to turn off your energy if they have exhausted every other means of repayment. Most suppliers will install a prepayment meter and call to discuss prepayment plans before they switch off your energy entirely.
Energy comparison site Business Electricity Prices know how daunting business energy debts can be. It can seem like there is no way out of mounting bills. Debt reminders and red notices can add undue stress to already overworked business owners.
The experts at Business Electricity Prices have created a guide for business owners who want to break free from existing debt. Keep reading to discover what business energy debts are and how you can avoid lump sum payments.
What Is Business Energy Debt?
Business energy debt is just one of the types of debt that business owners can accrue. Debt is often referred to as arrears, and arrears build-up when business owners do not pay their energy bills. They can also build-up if you only pay a fraction of your energy bills.
New and existing business owners have to walk a tightrope when it comes to income and expenses. There is a fine line between keeping businesses running and paying off important bills. Cash flow is often a problem for new and existing businesses that live through unexpected periods like the COVID-19 pandemic, with some racking up thousands or even hundreds of thousands of pounds worth of energy debt in just a few months.
What Causes Business Energy Debt?
There are lots of different reasons why business owners might accrue debt. New and existing business owners struggle to pay their bills every month. Here are the biggest reasons why business owners get into debt.
Cash Flow
It is no secret that cash flow is a common issue for business owners. Owners have to pay their suppliers, contractors, and employees before customers pay them for goods and services. When customers fail to pay businesses, owners will not be able to pay their energy suppliers.
When revenue is at an all-time low, business owners try to conserve as much cash as possible, meaning that business energy bills fall to the bottom of their priority list.
Cash flow issues can arise as a result of the type of business that you run. Some businesses are seasonal, which means that there will be less demand for products and services at certain times of the year. Someone who runs a Christmas themed candle business might struggle to pay their expenses in March and April.
Failing to pay necessary bills can also be an indication of poor business models or an increase in competition.
Personal Problems
Most micro businesses and small businesses are operated by a single person. When day to day activities depend on one person, personal circumstances can halt an entire business.
Deaths in the family, illnesses, and unexpected circumstances can make business energy bills seem insignificant. Ignoring gas and electricity bills can create problems that last far longer than the personal issue that caused them.
Startup businesses are especially vulnerable to this issue. Whereas big businesses might have established managers and supervisors, one-man bands can only depend on themselves.
Billing and Metering
Billing is a common issue for small business owners. New suppliers might underestimate the amount of energy that you will use in the first few months of operations. Business owners who are on fixed contracts are likely to face this problem. Suppliers who offer fixed contracts will estimate your usage and split the overall bill into twelve.
Estimated billing can cause big issues down the line. Once your supplier realises how much energy you are using and recalculates your bill accordingly, they will send you a bill for a large lump sum. Lots of business owners struggle to pay unexpected fees because they do not have the cash flow to accommodate them.
Top Tips To Prevent Business Energy Debt
Business energy debt does not have to be a part of your working life. Rather than dealing with the stress of repaying large debts, you can avoid them to begin with, and voiding energy debt might be easier than you think. Some of the tips on our list only require preplanning and a phone call.
Here are our top tips to prevent business energy debt.
Switch to Fixed Contracts
Switching to a fixed contract is the easiest way to manage your business energy bills. As the name suggests, fixed costs contracts offer business owners definite unit rates. No matter how much energy you use, you will always pay the same unit rate. If you use the same amount of energy from month to month your bill will be the same.
If you do not specify which tariff you want, your supplier will put you on a deemed contract. Deemed contracts become live when businesses move to new premises and use gas and electricity without negotiating a contract. They do not have fixed unit rates. Suppliers can change unit rates whenever they want so the unit rates are a lot more expensive than fixed contracts.
Lots of new business owners fall into the trap of forgetting to request a specific contract. The good news is that deemed contracts do not have to pay exit fees. Switching to a fixed contract or a more suitable tariff is hassle-free and will save you money in the long run.
Double Check Payment Details
One of the easiest ways to ensure that you do not accidentally fall into debt is to check your details. Lots of business owners input the wrong details whilst applying for their energy contracts. Incorrect details might not seem like a big problem, especially when busy business owners have other things to think about.
However, if you input the wrong payment details, your supplier might not contact you for months. They are under no obligation to contact you after the first or even second month that you pay energy bills with the wrong details. By then, you will have already amassed a sizable business energy debt. Large, lump-sum payments are one of the biggest hurdles for business owners.
Switch Suppliers
In the modern business energy landscape, it does not pay to stay loyal to your energy supplier. Now that the government has recognised micro-businesses as entities in their own right, there are far more specific tariffs for businesses that meet the criteria.
Lots of energy suppliers offer sign-on bonuses and discount deals to secure your loyalty. You can use energy comparison site Business Electricity Prices to survey the market and find a deal that suits you. The comparison generator will display the best deals for your business in a matter of seconds.
Solutions For Existing Business Energy Debts
Even the best-prepared business owners might find themselves with energy debt. Business management is stressful in itself and the recent COVID-19 pandemic has made money management more difficult than ever. Business energy bills do not mean that your business has to fold. With hard work and dedication, you can pay down your debt.
Contact Your Supplier
It is a common misconception that suppliers do not care about your circumstances. If you are in hundreds of thousands of pounds worth of debt, suppliers are less likely to be lenient about your bills. But if you are an SME owner who has undergone difficulty due to the COVID-19 pandemic, it is worth explaining your circumstances to your supplier.
Your supplier will likely offer you an extension if you guarantee to pay a certain amount within a defined time frame. Most suppliers will ask for evidence that you are able to pay your debt. Before your call, have your important documents to hand.
Set Up Payments
The first step towards paying off your debt is working out how much you can afford to repay. Once you have shown your supplier proof that you can afford to repay the debt, they are more likely to extend the repayment period and lower your payments.
Suppliers understand that business owners have other financial obligations. Before you call them, prepare a list of all the other bills that you have to pay on a monthly basis. This information will help you negotiate lower repayments and extended time periods.
Contact The Ombudsman
There is an ombudsman for every industry. Ombudsmen are regulators that investigate complaints and ensure bodies adhere to industry standard practices and rules. If you think that your supplier has treated you unfairly, you should contact the energy ombudsman.
Common complaints arise from gas and electricity bills, switching suppliers, and energy supplies, and the Ombudsman is a great place to turn if you believe your supplier isn’t doing what they should to help and support you.
