Business energy contracts and tariffs guide

Want to reduce the amount that your business spends on energy? The first step is making sure you're on the right type of tariff. Get started with our guide.

Business energy contracts and tariffs guide

When running a business, keeping costs down is an important part of maintaining a healthy bottom line - and one overhead that many UK businesses have in common is energy. Whether your business relies on it as part of your fundamental operations, or just to heat and light your premises, finding a good deal on your business energy can pay dividends – particularly for small businesses where margins tend to be tighter.

Getting on the right type of business energy tariff is an essential part of finding the right deal for you. To help you find the best business energy contract, we have put together this guide so you have all the information you need in one place to make a more informed switching decision.

If you would like to know more about specific aspects of business energy contracts, click the links below.

 

What are the different types of business energy tariffs and contracts?

When researching a better deal on your business’s energy contract, you’ve probably noticed that suppliers offer a number of different types of contracts to suit the varying needs of all businesses - and making the right choice can pay dividends in securing the best deal for your business.

In the table below, you will find all of the different types of business energy contract that are typically offered to SMEs, as well as a description of their features and benefits. With this table you can more easily decide which type of tariff is the best fit for your business’s operations – setting you on the right path to business energy savings.

Business energy contract type

 

Contract description

Specific contract features

Recommended for

Fixed-term contract

Allows you to fix the amount per unit (kWh) that you pay for your energy. Please note, it does not fix the total amount that you pay each month.

- Fixes your energy rates for the duration of the contract.

- Protects from energy price increases for duration.

Businesses of all sizes who are looking for security and control over their unit (kWh) rates.

Variable-rate contract

Your unit rates are linked to market activity. As such they can increase and decrease throughout your contract duration.

- Your price per unit could fall with market activity allowing you to secure better rates.

- If market activity causes price increases, then your price per unit will also increase.

Business owners who are willing to take a risk to benefit from future energy price decreases. However, the possibility of price increases should also be considered.

Deemed rates contract

A rolling contract with expensive rates that are arranged by suppliers for customers with no formally agreed contract.

- A 28-day rolling contract that requires one months’ notice prior to switching.

- Rates are typically well above market average.

Businesses on deemed rates should look to switch to a new contract with better rates as soon as possible (one months’ notice required).

Twenty-eight day contract

A contract for businesses who haven’t switched since the energy market deregulation came into effect.

- Contract offers variable rates which are impacted by price increases and decreases.

- A 28-day rolling contract requiring one months’ notice.

If you are on a twenty-eight day contract, there is huge potential to save by switching to a new business energy tariff.

Rollover contract

This type of contract is used on rare occasions by certain suppliers when no contract has been agreed before your current contract’s end date.

- Expensive rates

- Contract typically offered on a 12-month long term.

 

The use of rollover contracts is becoming increasingly rare by most suppliers. But, if you do find yourself on a rollover contract you should switch as soon as possible.

As you can see from the table above, there are a number of different options, offering a variety of features for business owners. It’s recommended for most micro, small and medium sized businesses - where margins can be tighter - to choose a fixed rate energy contract that allows the security of knowing how much your rates will be for the duration of the contract.

Please note: The individual circumstances of your business may lend itself to another type of energy contract. So, it’s important to take the time to properly consider which contract type would be the best fit for you.

If you would like further advice on which business energy contract is the best fit for your business, why not chat with one of our business savings experts today on 0800 188 4912.

 

What makes up a business energy contract?

When being quoted for a business energy contract, there are specific costs and features that you will want to pay attention to. Below we take a look at the different aspects of a business energy tariff, and what they mean for you and your businesses, to help you run a more informed comparison.

Unit rates

Your contract’s unit rate indicates how much you will pay per unit (kWh) of energy that your business consumes. Naturally, you will want to keep this cost as low as possible when finding a better deal on your business’s energy. Your unit rate is often the biggest variance between business energy quotes. This cost will differ depending on the circumstances of your business, such as the amount of energy you are likely to consume, and even the geographical location of your business premises.

If you want to know more about unit rates, and how much you can expect to pay on average, visit our guide to business energy prices and rates.

Standing charge

A standing charge is another element of your business energy tariff that can affect the amount that you pay. The standing charge is a fixed daily cost that suppliers use to cover the expense of repairing and maintaining facilities used to supply energy direct to your premises.

If you would like to understand more about standing charges, and how much you can expect to pay, visit our guide to business energy prices and rates.

Agreed supply capacity (for high consumption customers)

Agreed supply capacity (ASC), is the maximum electricity demand that a business agrees they need to have from their supplier. In turn, the supplier agrees that their network will be able to continuously provide the amount the business requires – but no more. 

This means that the ASC defines the maximum amount of power that can come from the local distribution system through a customer’s supply point at any given time. It is also referred to as Maximum Import Capacity, Authorised Capacity or Available Capacity and is measured in Kilo-Volt Ampere (kVA).

The Supply capacity will be stated in your property’s connection agreement with the local distribution network operator (DNO). Only businesses that consume significant levels of energy need to speak to their provider about agreeing a supply capacity.  

Maximum demand (for high consumption customers)

Maximum demand is the highest value of energy used in any given half-hour period and is measured in kWh. This is the highest demand recorded over a half-hour period, usually during a calendar month or billing period, multiplied by a factor of two to give the MD on an hourly basis.  If your MD exceeds your maximum agreed capacity, excess charges may be incurred and you may have to re-declare your ASC.

For more information on high demand businesses, click here

Cooling-off period

One of the features of an energy contract that differs between domestic and business customers is the cooling off period. This is a specified period of time that is made available to consumers after they have made a purchase (arranged a switch), within which they can cancel that purchase without facing a financial penalty. 

For business energy customers, the cooling off period is slightly more ambiguous as Ofgem - the energy industry regulatory body - do not impose an industry standard for business energy contracts. As such, different suppliers will have different practices in place when it comes to business energy – but you’ll find that most do not offer a cooling off period to their business customers. This is typically because business contracts are tailored specifically to each business customer, so there is less chance of the customer changing their mind after accepting a deal.

In the event that no cooling off period is offered, it is especially important to compare deals across suppliers, as it helps make sure the energy contract you ultimately choose is appropriate for your business needs. It is also important to make sure you fully understand the terms and conditions of your new contract before committing to a purchase.

The billing period

The billing period is the amount of time that a bill will cover. It is possible to negotiate your billing period with your supplier when organising a new business energy contract. Smaller businesses may find that having more frequent bills is favourable, as it allows you to keep a close eye on how much they're spending on energy.

Renewal window

At the end of your contract, you will enter a period known as your renewal window. Depending on your supplier and contract, your renewal window will be either 60 or 120-days prior to your contract end date. Having the longer 120-days renewal window allows you to spend more time finding and comparing business energy deals, which is helpful in acquiring the best deal for your business.

The features listed above are going to be the main points of interest that you will want to take note of when looking for and comparing new business energy contracts.

If you would like more guidance on understanding which business energy contract is the best fit for your business, speak with one of our business savings experts today on 0800 188 4912.

 

What to do when your business energy contract comes to an end?

When your business energy contract is coming to an end, your supplier will send you a letter detailing their offer of a new deal. If you don’t inform them that you’re either accepting or rejecting this deal - then it’s likely you’ll move onto your existing provider’s expensive out-of-contract rates as soon as your contract expires.

To avoid having to pay more than necessary, it’s important to set aside a few minutes to arrange your next business energy deal when your current contract is due to expire. This means comparing quotes from different suppliers ahead of time so you can find a tailored quote appropriate for the unique needs of your business.

Below you can find an outline of what to do when your business energy contract is due to expire, and any deadlines you have to be aware of.

Time frame

What to do

Six months before your contract end date

Compare prices from different suppliers to get an idea of what deals are available. If you receive an offer that you like, you can accept the deal and inform your current supplier. The switch will automatically take effect when your current contract ends.

60 to 120-days before your contract end date

Provided you have not already organised a new deal, your supplier should send you a Statement of Renewal. This is a letter that outlines their offer of a new contract. You’re not obliged to accept the contract, and it’s recommended that you use the prices your supplier has offered as a reference point to compare business energy rates and get a better deal from another supplier.

After your contract end date

Once your contract expires, you’ll be sent a final bill and you may need to submit a final meter reading so the bill is accurate. Your supplier will let you know the period of time within which you are expected to pay the final bill. If you have not organised a new deal, you will be transferred onto a rollover over contract, or deemed rates, depending on your circumstances and supplier.

 For more information on switching your business energy, click here.

 

Getting out of your business energy contract early

While businesses are free – and encouraged – to switch to better deals, they must follow the terms and conditions specified in their current contract. Whether you signed a contract or accepted a verbal agreement over the phone, agreeing to a business energy contract means you are then bound by its terms and conditions. Your supplier will make sure you have a copy of these available so you can refer to them if you need to.

As discussed above, you can typically arrange to switch suppliers – or agree a new deal with your current supplier – up to six months before your current deal is due to expire. Attempting to switch any earlier than this is not recommended, as it can be difficult for suppliers to provide an accurate quote for your new contract, and you may end up with an unnecessarily expensive deal as a result.

You can find out when your current deal is due to expire in your terms and conditions of your contract, or on your business energy bill. For more information, click the link.

Only under specific circumstances is a business able to end their business energy contract early, and these include:

  • If you go out of business and cease operating.
  • If you move into a new business premises.

In the event that you experience one of the above circumstances, then you must contact your supplier directly to inform them of your current situation. Your supplier will then advise you on next steps.

Not being able to switch early, doesn’t mean that there’s nothing you can do until your contract end date. You can organise a new contract 60 to 120-days prior to your contract end date, and you should take the opportunity ahead of your renewal window to get a head start and gain the best understanding possible so you can find a better deal on your business energy.

If you need further advice on finding the best deal on your business’s energy contract, why not speak to one of our business savings experts today on 0800 188 4912.

 

Does my business credit score affect my eligibility for business energy tariffs?

Unlike the domestic market, business energy suppliers can choose which customers they want to deal with based on their credit score and history. Business energy is expensive and is used in large quantities, so suppliers are more conscious about the risks involved with supplying gas or electricity to businesses that may be unable to keep up with payments.

A low credit rating, or being in a high-risk industry, may mean that your choice of energy supplier and energy tariffs is limited. Some energy suppliers simply won’t accept businesses with a poor credit history or a poor credit score, while others may not give you access to 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 (although some suppliers offer a discount for this arrangement).
  • Install a pre-payment meter.

When energy suppliers go through the process of comparing business electricity prices for customers, they tend to offer their best rates to those with a good credit rating. As such, any supplier about to offer your business an energy contract is likely to run an online search with a credit agency to find out your score. It is worth noting that some credit rating services estimate one in three businesses are being denied the cheapest rates because they fall below the required minimum credit score threshold.

There may be certain businesses – especially startups - without a credit history, or with a relatively low score. As such, suppliers will be reluctant to offer you their cheapest prices as they have no guarantee you’ll be able to keep up with your payments.

Energy suppliers work closely with the credit reference agencies to ensure that:

  • Customer data they receive is accurate.
  • Systems being used for capturing consumer information are reliable.
  • Staff is fully trained and aware of the impact that sharing information with credit reference agencies will have on their customers.
  • Correct processes and procedures are in place to query and ‘hold’ accounts if there is a dispute which might have a negative impact on a customer’s credit record.
  • Your business’s credit score is calculated by the Credit Reference Agency (CRA), and is based on all the information lenders share regarding your financial history.

The important point to note here is that all lenders do not treat credit scores in the same way. While some may be prepared to overlook a certain number of missed payments if they believe that you’ve generally been paying promptly, others may not accept any missed or late payments at all. This will impact your overall credit score.

A small business’s credit rating based on a scale of 1-100, with higher numbers indicating that a firm is in a stronger financial position. It is a variable number, and while agencies will use different methods to calculate your score, it's vital to ensure it's as high as possible.

A business’s credit score report will detail the following:

  • A credit score and credit summary.
  • Key facts about the business.
  • Corporate registration and contact information.
  • A summary of collections and payments.
  • Uniform Commercial Code filing information.
  • Banking, insurance and leasing information.
  • Bankruptcy filings.
  • Judgment filings.

It’s worth checking your credit file once in a while and speaking to one of the credit agencies to get advice on how to improve your credit rating.

How can I maintain and improve my business's credit profile?

Speaking to a credit rating agency and working through your finances is an effective way to improve your score. However, as a general rule of thumb, sticking to the following should ensure you’re not damaging your credit rating:

  • Paying your bills on time. Lenders and suppliers base your credit score on your payment history and the amount of outstanding debt. If you have taken out numerous small loans and paid them back on time, then this will have a positive impact.
  • Know Your Score. There is always the risk that credit agencies could get something wrong , so you should check your score with them once a year to highlight any errors – they are obliged to change the report if you can prove that they have made an error.
  • Submit your accounts on time – make sure that all your accounts are up to date and submitted within the correct time scales.
  • Personal Finance – sole traders and partnerships will often be accepted or refused on the credit score of the person making the application, not that of the business.
  • Sources of Information – a lack of information on your business profile can be just as harmful as a poor credit history. You may need to encourage suppliers who establish credit for your business to report positive information.
  • If you had financial links to other people which are no longer relevant (such as an ex-partner) ask for them to be removed from your records.
  • Close accounts you no longer use – a lot of unused credit you can access without further checks may negatively affect your rating. It can also make you more vulnerable to fraud.

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