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4 weeks ago

Unlocking Energy Deals with a Strong Credit Score

By Phoebe Price, Capitalise

Why Your Business Credit Score is Important When Securing a Multi-Year Energy Contract

When it comes to getting the best energy deal for your business, many factors come into play. While factors such as the type of industry you're in or the size of your company may seem obvious, one thing you might have yet to consider is your business's credit score. Let's explore how your business credit score impacts energy prices and why providers take it seriously.

What is a Business Credit Score?

A business credit score reflects the level of risk associated with doing business with a company. It considers various factors such as payment history, credit history and public records. Lenders and suppliers often use this score to assess the likelihood of a business defaulting on its financial obligations.

If your business operates as a limited company, it will have its own business credit score. This score is typically represented by a letter rating ranging from A to G, along with a numerical rating spanning from 0 to 100. A higher score represents a strong credit profile and a decreased risk of working with your business.

Here’s an outline of the risk levels associated with each business credit score:

  • 2 to 15 = maximum risk

  • 16 to 25 = high risk

  • 25 to 50 = above average risk

  • 51 to 80 = below average risk

  • 81 to 90 = low risk

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Why is Your Business Credit Score Important to Your Energy Provider?

When entering a multi-year energy contract, the provider will purchase the equivalent amount of electricity required for the agreed-upon period and lock it in at the set price. However, this commitment poses a risk to the provider: if the business fails, the purchased electricity will need to be deployed elsewhere, leading to potential losses.

To assess this risk, energy providers check your business’s credit score to gauge your ability to fulfil your obligations over the contract term. A low credit score may signal financial instability, raising concerns about your ability to honour the agreement. A higher credit score indicates lower financial risk, making it more likely for providers to offer favourable terms and pricing.

How Will This Impact the Terms You Get?

Here’s how your business credit score will impact the terms and pricing your energy provider offers you:

  • A good business credit score will give you more negotiating power, which could enable you to leverage more favourable terms and lower prices. On the other hand, a low business credit score will likely limit your bargaining ability.

  • Some energy providers may have a minimum criteria set, so you'll have fewer options if you have a low business credit score. If you have a good business credit score, you’ll likely have a choice from multiple offers, meaning you can find the most cost-effective solution.

  • Energy providers will factor in the potential cost of a default when setting prices. A strong credit score will mean you can access cheaper prices and potentially longer terms. However, with a lower credit score, energy providers will look to mitigate risk by inflating prices to offset potential losses.

Can you Improve Your Business Credit Score?

You can take steps to improve your business credit score over time by adopting positive actions, such as:

  • Paying all of your bills on time

  • Building up your credit history by using a business credit card, for example

  • Avoiding any legal notices, such as CCJs

  • Using your business bank accounts regularly

  • Ensuring your information is accurate and up to date

However, it can take some time to see a result with this approach if you’re looking for a quicker way to boost your credit score, use Capitalise’s Credit Review Service. As a Capitalise subscriber, you can get your credit score professionally reviewed for as little as £375. In 96% of cases, this results in an improvement, allowing you to lock down a better price with your energy provider.

Check Your Business Credit Score

Now that you know why your business credit score is important, it’s important to keep track of it so that you can set your expectations with your energy provider and spot if there are areas you could improve.

To get started, just sign up to Capitalise and you’ll be able to see your business credit score.

To find out more, head to Capitalise.com

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Sam White