Does your business credit score affect your energy deal?

A whole range of things affect the type of energy deal your business will be offered by suppliers, from the size of your business and the number of employees to the industry you operate in and its location. 

And there’s one other factor that plays a key role in whether some suppliers will even offer you an energy deal - your business credit score.

What is a business credit score?

A business credit score is a number between 1 and 100 that indicates to leaders the creditworthiness of your business - with 1 being least creditworthy and 100 being the most creditworthy.

As with a personal credit score, the rating your business is given is based on risk - if your business is struggling or has missed or late payments on business loans or business credit cards it will be seen as a bigger risk to lenders and this will be reflected in its credit score. 

The same applies if you’re a startup and looking to open business credit lines for the first time. This is because credit reference agencies and lenders have no previous information to base their decision on, and so will assume you’re a bigger risk than an established business with a sparkling credit history. In this instance, a decision to lend could be based upon your personal credit score, but this depends upon the lender and the type of business finance you’re applying for.

Why do energy suppliers check your credit rating?

When you sign up for a commercial energy deal, your supplier will buy enough energy to cover your usage over the term of your deal, whether that’s one, two, three or more years. Your business then pays the supplier as it uses that energy.

This means you essentially enter a credit agreement with your supplier, and they stand to lose money if you can’t afford to pay your bills. This is why suppliers take your business credit score into account when working out your rates. 

Your credit score will be used to assess how likely it is that you’ll be able to keep up with payments, and this can affect the rates you’re offered. Your credit score and current circumstances might even mean some suppliers won’t even offer you an energy deal at all, something a growing number of business owners have been struggling with as a result of the coronavirus pandemic.

Energy suppliers will have different criteria when it comes to how it uses your credit score, which means there’s no definite number which means you’ll be accepted but, as a rule of thumb, if your score is higher than 40, you're more likely to get cheaper energy rates.

In short, the lower your company’s credit score, the fewer the options it will have and the higher the rates it will be charged. Suppliers do this to protect themselves from the risk of debt, in much the same way as lenders offering personal and business finance deals and while energy suppliers for bad credit are out there, they’ll charge you more for your energy.

Higher energy rates can add to any existing financial problems you may have, so it’s important you find a great deal and never slip onto expensive out-of-contract rates.

How can your business credit score affect the terms of your energy deal?

If your business has a poor credit score, a limited credit history, and is in a ‘higher risk’ industry then you could find your choice of energy supplier and tariff can be limited. While some energy suppliers won’t offer energy deals to any businesses with bad credit, others might offer inflated rates or charge an additional premium to reflect the added risk.

You might also find that your supplier might ask for a security deposit, make you pay your business energy bills by Direct Debit, or even install a prepayment meter at your business premises.

What other information do suppliers use when negotiating energy rates?

In addition to your business credit score, suppliers will look at the following information to work out the rates they’ll offer you:

• The size of your business.
• The industry it operates in.
• Its average annual energy consumption.
• Its location and number of sites.
• The number of fuels you are being quoted for.
• Your current supplier.
• The length of contract that you need.

Your supplier might also take your standard industrial classification (SIC) number into account. This is a five-digit code used to classify different kinds of business and provide a large range of statistical data according to economic activity.

SIC classifies some sectors as a higher risk than others. If you’re in the hospitality industry, for example, your business might be more likely to have a high turnover of management and staff, while operating in a volatile and seasonal market. This level of uncertainty can worry suppliers and affect the deal you’re offered.

You can find the SIC code for your industry at http://resources.companieshouse.gov.uk/sic/

What factors affect your company’s credit score?

As with a personal credit score, there are many aspects that can affect your business credit rating, including:

• Size of your company - The number of people you employ.
• Payment of bills -  If you’ve struggled to keep up with bills, you’ll have a lower credit score.
• Finance applications - The number of times you've applied for finance in the past, both successfully and unsuccessfully.
• Groups -  If your business belongs to a group, other companies within this group will have an impact on your credit rating.
• Business location -  If the local area has a high rate of bad debt or liquidation, this may lower your rating.
• Credit history of your company's directors - If they're associated with businesses that are insolvent, this could reflect badly on your firm.

Do energy companies do a hard credit check?

Most suppliers will run a credit check on anyone applying for a business energy contract. This will usually be a soft credit check that won't show up on your credit file and affect your ability to get credit.

If you've been turned down for a business energy contract following a credit check, speak to the tech-enabled team at Bionic to see what options they can find. 

Does switching energy suppliers affect your credit rating?

Although switching suppliers doesn’t directly have an impact on your credit score, the fact that a check is run against your credit file as part of the process means that your score could be affected. 

But don’t let this put you off switching as this should only be a small dip in your score and is something that happens whenever you apply for credit - that’s why you shouldn’t make too many applications in a short space of time. 

Any dip in your score should right itself, but this could take up to 6 months (provided you’re not rejected) and the savings you could make will make switching worthwhile. The most important thing to watch out for, as far as switching and your credit score is concerned, is that your new supplier bills you correctly and you pay your business gas and electricity bills on time.

Are there any energy companies that don’t do credit checks?

Although no ‘no credit check’ energy companies in the UK do exist, the way business electricity and gas contracts work means that all suppliers will check the credit history of your business. The best way to find a business energy deal that suits the needs and circumstances of your business is to talk to our tech-enabled experts on 0800 084 3349.

How to check your business credit score for free

It’s important to have a handle on your business credit score, so you can set your expectations when applying for any type of business loan or energy deal, but it’s unlikely to be something you’ll want to pay for.

You can check your business credit score for free with Experian, by signing up for its three-month free trial at https://www.experian.co.uk/business-express/credit-report/my-company/. But, unless you’re happy paying £24.99 (+VAT) a month to continue your subscription, make sure you cancel before the trial period ends.

How to improve your business credit rating

Improving your business credit score is an effective way to make sure you business is eligible for the most competitive loan and business energy rates, and the best way to improve it is to stick to good financial habits.

Whether you’re looking to improve a damaged business credit rating or you’re a startup looking to build your credit history from scratch, here are a few ways to help improve your credit score:

• Open your credit lines - Easier said than done in some instances, but taking on credit and making timely re-payments is possibly the most effective way to improve your business credit score. As a business owner, opening a credit account with your suppliers is a good place to start, as is taking on a business phone and broadband contract. Taking on credit is a balancing act though, so try not to make a number of credit applications in any six month period.
• Pay all bills on time - All business owners have to pay themselves and the bills, so making sure you pay yours on time will not only help improve your credit score, but it will also become a good financial habit that will stand you in good stead in both your personal and professional life. It’s often a good idea to set up a Direct Debit to make sure you never miss a payment.
• Register with a credit reference agency - This makes sure credit reference agencies know your business exists and can help your credit score, so long as you keep up the good financial habits. Manually adding trade references to your company’s credit file can also help - the more positive payment references, the better.
• Correct mistakes on your credit file - When checking your credit file, look out for any mistakes, including payments that have been marked as missed, credit balances and linked accounts. Removing any errors can help boost your score, and keeping a check on what accounts are open in your name can help protect your business against fraud.
• Watch your personal credit score - Although your personal and business credit scores aren’t linked, business lenders may still check your personal finance record to build up a more complete picture, particularly if you’re a start-up.

In order to maintain a good credit score, you need to keep on top of your finances, and switching business energy can help you do just that. Switching with Bionic could knock down the costs of your commercial gas and electricity bills - money you could use to put aside in savings or pay off other debts to help boost your credit score.

To switch, enter your postcode in the box on the right, or give our tech-enabled experts a call on 0800 084 3349.