Energy costs are typically among the most expensive expenses for a business. Almost all businesses use energy in some way, and depending on how much energy is used, changes in energy prices can have a significant impact on expenses. As a result, many businesses are now struggling to maintain a healthy cash flow and risk falling behind. So, what should a company do if it is struggling?
What help is currently out there for businesses?
Fortunately, there is assistance available for businesses that are struggling with their energy costs. The UK government announced in September 2022 the ‘Energy Bill Relief Scheme.’ It meant that businesses would get lower gas and electric bills. It is expected to be amended in March 2024, with a new scheme allowing businesses to pay at wholesale energy prices.
Aside from government assistance, there is much that businesses can do on their own to try to reduce energy price problems.
Get in touch with your supplier
The first point of contact should be with your energy supplier. If you already have a backlog of arrears and are struggling to get back on track, they may be willing to work with you on a payment plan or be lenient with your outstanding debts. Check to see if you are fully aware of what you are currently paying and if your output matches the payments requested by the energy supplier. It is possible that you were overcharged.
Look at other suppliers rates
Depending on the type of contract you currently have, a company can always shop around and look at alternative suppliers. Comparing tariffs to other suppliers allows you to see if there are better rates available. Be aware of the type of rate you are being quoted, as well as whether it is fixed or variable. Depending on what happens during the energy crisis, signing a long-term contract could mean paying more over a longer period of time. Variable rates, on the other hand, expose you to the risk of rising energy prices.
Turning green
If a company has the right infrastructure, implementing green efficiency could help them save money in the long run. Having more control over your own energy means that your company will no longer be reliant on external supply prices. The UK government has also considered giving money to businesses that want to install a more energy-efficient heating system.
But what if you can’t afford your bills?
With such high energy prices, it’s a scary time for businesses because it means they can be living from month to month with no chance of growing or surviving. Energy companies have every right to pursue businesses, and failure to pay could result in county court judgements being filed against them. In the worst-case scenario, a company’s energy could be disconnected.
Repayment plans
Aside from reaching an agreement with the energy company regarding your tariff. There are formal repayment plans that businesses and sole proprietors can implement with all of their creditors, not just energy suppliers.
Company Voluntary Arrangement (CVA), is a procedure that allows a business to repay its unsecured debts in instalments. It must be agreed upon by all creditors and typically lasts about five years. Individual Voluntary Arrangement (IVA), are very similar to CVAs, but it is only available to individuals and sole proprietors.
Summary
With energy prices as they are, it is a difficult time for businesses. There are solutions and assistance available, but with no end in sight for when energy prices may fall, it may be a better option to simply close the business down in an orderly fashion rather than throwing good money at bad debt.