How your business's credit score can affect your energy bills
Did you realise you could be paying more for your business's gas and electricity if you have a low credit score?
Most consumers know that their credit score can affect their ability to access loans - and the same can be said of SME owners who are trying to secure finance.
However, our research indicates that many small businesses aren't aware of the fact that their credit ratings can also impact on their energy bills, and there's a risk that they're paying over the odds for their gas and electricity as a result.
How does it work?
Unlike an individual's credit score, a company's is based on how likely it is to go out of business within the next year. Each SME is rated on a scale of 1-100, with higher numbers indicating that a firm is in a stronger financial position.
It's important to realise that your business's credit rating is not fixed - it's a variable number, and while numerous agencies will use different methods to calculate your score, it's vital to ensure it's as high as possible.
What impact can a low score have on my energy bill?
Energy providers use credit ratings to determine the prices they are going to charge a business, and companies with a lower rating will have fewer options to choose from when it comes to selecting a gas or electricity deal. These contracts will almost invariably be more expensive, too.
The reason for this is that suppliers want to protect themselves against bad debt, so they will hit businesses that are at risk of going under with higher bills. It's a system that can often exacerbate any financial problems a small company might be facing, so it's imperative for SMEs to improve their credit score and get a better deal for their energy.
Indeed, the stronger your business's rating, the higher chance you have of securing the best contracts for gas and electricity. Firms with scores above 40 tend to be well-placed to get themselves on cheaper energy tariffs.
What factors affect my company's credit score?
There are many aspects of your business that can affect its credit rating, with financial performance obviously being a big factor.
Here's a quick breakdown of the things you need to bear in mind:
- Size - the size of your firm and the number of people you employee will be reflected in your credit rating.
- Bills - businesses that have struggled to keep up with their bills in the past will have a lower credit score.
- Finance - credit rating agencies take into account how many times you've applied for finance in the past, both successfully and unsuccessfully.
- Groups - if your business belongs to a group, other companies that are part of this group will have an impact on your credit rating.
- Demographics - where your firms is based can play a part in your score, as if the local area has a high rate of insolvencies then this doesn't bode well for fellow SMEs.
- The history of your company's directors - if they're associated with businesses that are insolvent then this could reflect badly on your firm.
Can I find out my credit rating?
There are ways to find out your credit rating, and the best method for doing this is to contact one of the top credit agencies - the likes of Experian and Dun & Bradstreet both offer a comprehensive service.
It's likely you'll have to pay a small fee to access the information, but it's a worthwhile exercise - if you spot any mistakes you can have them rectified, and this could potentially improve your credit score.
Lastly, if you're worried about your rating and the impact it's having on your bills - especially if you're a new business - then talk to us to see how we could help.