Credit scoring
The credit rating of you if you are a sole trader or your business if you run a limited company plays a crucial role in determining your options for energy supply and the rates you can secure. Energy suppliers evaluate your credit score to assess the risk of you defaulting on payments, as business energy is costly and non-payment can have a significant impact on their own operations.
All suppliers conduct credit checks as part of their evaluation process.
Suppliers are particularly risk-averse following recent events with wholesale prices more than doubling. This has lead them to establish strict parameters that customers must meet in order to secure a contract. These parameters are non-negotiable and apply universally, irrespective of any assistance provided in finding the best deal.
A significant number of suppliers require a minimum credit score of 26, based on the Experian rating, meaning customers with a credit score lower than this threshold will have limited access to the full range of available options in the market.
The Experian business credit score rating scale is as follows;
- 100–76: Low risk of delinquent or defaulted payment
- 75–51: Low to medium risk of delinquent or defaulted payments
- 50–26: Medium risk of delinquent or defaulted payments
- 25–11: Medium to high risk of delinquent or defaulted payments
- 10–1: High risk of delinquent or defaulted payments
An Experian business score of 76 or higher is generally considered to be good.
Customers with a maximum risk credit status face even greater challenges, as only a handful of suppliers are willing to consider offering them a contract.
Moreover, certain sectors have been excluded by multiple suppliers, further restricting the available choices for businesses in those industries.
If you have a poor credit history, we are committed to finding the best possible deal for you. However, please understand that the options may be limited due to your credit history.
Improving your business credit rating
Improving your business credit rating involves various actions.
Max Firth, Managing Director of Experian’s Business Information Services, offers the following advice on enhancing the credit rating of your business;
Check your personal credit score
Firstly, it’s crucial to be credit-aware by regularly checking your own personal credit score. This assessment provides insights into how other businesses perceive your financial health, and addressing any lingering issues is vital.
Monitoring personal credit scores alongside the business’s finances is essential, particularly for micro or newly formed businesses.
Ensure all official data is complete and accurate
Lack of detailed data or incomplete and inaccurate information can lead to low scores, so filing comprehensive accounts with Companies House contributes to a more accurate credit profile. Factors such as location changes, transition to limited status, and mergers/acquisitions also impact credit scores.
Consumer data can serve as an indicator of commercial integrity when financial data for the business is limited.
Register with a credit reference agency or business directory
Registering with a credit reference agency or business directory helps ensure your business remains visible to credit evaluators. Failure to be on their radar can impede access to credit and services.
Proactively engaging with credit reference agencies equips businesses to take action in boosting their credit score and improving external perceptions. Regular monitoring of the credit score is important to ensure it accurately reflects the business’s situation and to address any highlighted issues promptly. Failing to check the credit score may result in missed opportunities, such as lost contracts, supplier refusals, or finance rejections.
Please don’t be afraid to liaise with the credit reference agencies because the information they provide may be very helpful for you.
File accounts on time
Timely filing of accounts with Companies House is crucial, as late filing suggests a struggling business.
Pay invoices on time
Paying invoices on time is another key indicator of financial stability.
Make sure you have the correct SIC
The Standard Industrial Classification (SIC) is important in determining the risk of a limited company for suppliers. Please see below for more information about the SIC.
Check your Standard Industrial Classification (SIC)
This is for limited companies.
The Standard Industrial Classification (SIC) is a system used to classify and categorise different types of industries or businesses based on their primary economic activities. It provides a standardised way of classifying businesses for various purposes, including statistical analysis, industry research, and regulatory compliance.
The SIC system uses a numerical code to represent different industry sectors, sub-sectors, and divisions. Each code corresponds to a specific type of economic activity or industry. The classification is hierarchical, with broader industry sectors at the top and more specific sub-sectors and divisions further down the hierarchy.
Please click here to check the various SIC codes at Companies House.
Energy suppliers consider the Standard Industrial Classification (SIC) to classify different types of businesses, with certain sectors deemed higher risk than others due to factors, such as turnover of management. Suppliers are cautious about the risks associated with providing energy and have the freedom to select low credit risk businesses.
Conclusion
Credit ratings are very important when it comes to getting the best deal.
A poor credit rating or being in a high-risk industry can limit your choices for energy suppliers and tariffs. Some suppliers may refuse service to businesses with a low credit history or score, while others might impose additional costs, request a security deposit, mandate Direct Debit payments, or install a pre-payment meter.
You can improve your score by regularly checking your credit file and making improvements by ensuring that you ensure all official data is complete and accurate, register with the credit reference agency or business directory to improve your visibility, file accounts on time, pay invoices on time and ensure your company has the correct SIC code.
Comparing energy prices from multiple suppliers is recommended, but it’s important to inform them about your credit situation to receive accurate quotes.