Credit Risk? How does this impact my bill

Credit Risk: How Does It Impact My Energy Bill?

Credit risk plays a significant role in how energy suppliers assess and price contracts for small and medium-sized enterprises (SMEs). Suppliers often use one of two approaches when considering credit risk:

• Some suppliers may not accept small businesses that fall below a certain credit threshold. This threshold is typically determined by a credit score, such as those provided by Experian, or by excluding specific industries considered high-risk, like hospitality.
• Alternatively, suppliers may price credit risk into the cost of a tariff. This can be done by offering higher rates on the tariff charges themselves or by imposing higher security deposits to mitigate the perceived risk of non-payment. As a result, businesses with lower credit scores or those operating in higher-risk sectors may face increased energy costs.

Why Credit Risk Matters to Suppliers

Credit risk is important to energy suppliers because it helps them manage financial stability and minimise losses due to unpaid bills. By assessing creditworthiness, suppliers can ensure they are offering services to customers who are likely to pay their bills on time, thereby maintaining a healthy cash flow. Some suppliers are more cautious and might exclude high-risk customers altogether, while others might adjust pricing or require security deposits to mitigate potential risks. This careful management of credit risk allows suppliers to protect their financial interests and offer competitive rates to businesses that present lower financial risks.

How Credit Risk Affects Small Businesses

Not all suppliers care about credit risk in the same way. Some may only accept businesses that fit a certain criteria, while others will accept SMEs regardless of their credit score or industry. This means finding the best deal might require more time and effort. This means if you want to get an energy contract directly from an energy supplier, you could be required to shop around for a long time until you get a decent energy deal. Tariff Tribe does this part for you!

How Tariff Tribe could help you get a better deal regardless of your credit score?

At Tariff Tribe, we simplify the process of finding the right energy contract. Our bundling algorithm diversifies credit risk, making it easier for suppliers to consider businesses they might typically exclude. By doing so, we help ensure that you can find an energy contract, regardless of your credit score or industry, offering tailored solutions that meet your business's needs and potentially provide better rates and contract terms. Our approach bridges the gap between suppliers' need for financial security and your desire for affordable, reliable energy solutions.

What we find strange and want to better understand

Both energy suppliers and third-party intermediaries (TPIs) in the non-domestic energy market often prefer businesses to sign up for longer contracts, with an average contract length of 2.2 years. Longer contracts mean revenue for longer periods of time. But, at the same time, suppliers and TPIs worry about credit risk to the extent where they are turning down small busiensses.

This raises an question for us: Why don’t suppliers offer shorter contracts for these higher-risk SMEs? Shorter contracts might reduce the financial exposure for suppliers while providing energy access to businesses that otherwise face exclusion. Additionally, reducing the average contract length could make credit risk less of a critical factor, particularly if the expected lifespan of a small business aligns with shorter contract terms.

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