Businesses face plenty of challenges in the current economic climate. They need to ensure they remain competitive enough to attract new customers and clients in an ever-changing market.
On top of that, companies need to keep on top of their expenses. Failing to do so can lead to debt, and in some cases, those that can’t repay their debts are forced to shut down.
One of the major challenges to UK businesses that isn’t often discussed is the problem of energy debt. For thousands of them, it’s a significant source of financial pressure that can be difficult to shake.
“We talk to dozens of businesses every day who are in some sort of debt to their current or previous supplier,” says Wayne Heap, Director of Service at energy experts Love Energy Savings. “It’s a common issue, but because few people talk about it, many don’t know where to start when they find themselves falling behind on their payments.”
Thankfully, help is at hand. We break down what business energy debt is and how you can move your company into the black.
Understanding business energy debt
What is business energy debt?
Also known as business energy arrears, energy debt is a cost accrued when a business has not paid a previous bill or did not pay the regular amount.
Over a long period of time, these debts can reach thousands of pounds and suppliers may demand immediate payment when it reaches a certain amount. This can spell disaster for small businesses.
What causes energy debt?
There are a number of reasons why businesses can fall into debt with suppliers. It’s not just new businesses that struggle.
Here are a few of the most common ones:
- Billing and metering issues
The Money Advice Trust found that, for small businesses, billing and metering issues is the number one cause of energy debt.
One of the most common issues found was that businesses were underbilled in the early stages of their contracts. When suppliers agree fixed contracts with businesses, they agree costs based on an estimate rather than actual meter readings and set up low monthly payments as a result.
Later, they require the difference be paid, and businesses often don’t have the resources to cover outstanding charges.
2. Declining revenue
Even when billing is set up correctly, the revenue available to businesses to make their payments is constantly in flux.
Reasons for declines in revenue include:
- Changes in consumers habits — Consumer values and technologies mean businesses have to continually adapt to keep up, and some get left behind. Newsagents, for example, have seen significant declines in sales of newspapers in the wake of the digital and green revolutions, and takeaways with no online presence struggle to be discovered by new customers.
- Seasonal changes — Some businesses offer products that are in low demand at certain times of year. Ice cream parlours, for example, are likely to see much less footfall in January than in July.
- Increased competition — Smaller businesses can be undercut by large companies moving in nearby or by the success of an online competitor.
3. Personal circumstances
Small businesses are more at risk to financial problems if their day-to-day operation relies heavily on one person.
Personal circumstances like a death in the family, a relationship breakdown or a long-term illness can mean that business owners are away from their work for an extended period of time, losing potential revenue as a result.
How to prevent energy debt
The best way to get out of business energy debt is to prevent it from occurring in the first place. Here are some of the easiest ways in which you can protect yourself.
1. Switch to a fixed contract
One of the traps many businesses fall into is being put on a deemed contract. Deemed contracts are on average 80% more expensive than negotiated contracts (Source: Ofgem).
If you’re currently on a deemed contract, you can switch your contract to a different tariff or a different supplier. Suppliers of deemed contracts aren’t able to charge you a termination fee, so you don’t need to worry about budgeting for the switch.
See how much you could save by switching your energy provider with our free online quote comparison tool.
2. Find out what you need to pay and what you don’t
You may not be required to pay everything that you think you do.
For example, legislation introduced in 2018 dictates that suppliers cannot bill mico-businesses for energy that was used more than 12 months prior. The only exception to this is if you’ve hindered the supplier’s ability to retrieve meter readings.
It’s possible that your supplier is charging you for things you don’t use. Look through your bills and highlight anything that’s unclear; speaking to your supplier about it can highlight any incorrect charges that could reduce your bills.
For more information, see this guide from the Citizens Advice Bureau.
3. Double-check your details
Ensure that your payment details are set up correctly. Often it can take a few months for a supplier to get in touch about missed payments, by which point you’re already in debt.
If your contact details are incorrect, you could go the best part of a year before you learn about your debt, which might be unmanageable.
Double-checking all of your details before you agree to a contract means that none of these problems occur and you don’t miss payments unknowingly.
What you can do if you have business energy debt
Most markets are a constant state of flux, so even with the best preparation, you might fall into energy debt at some point.
Suppliers are entitled by law to cut off your gas or electricity if you fail to pay. For that reason, business energy debt should be considered a priority debt.
Thankfully, there are a few steps you can take to help you.
1. Speak to suppliers as soon as possible
As soon as you become aware of your energy debt, contact your supplier and fully explain your circumstances. Give any relevant reasons why you aren’t able to pay. Most suppliers will try to give you time to pay what you owe in the form of monthly repayments.
You’ll need to show that you can pay for your ongoing fuel as well as contributing to arrears. Suppliers may agree to increase your monthly payments to offset the debt.
2. Renegotiate payments
If you’re already on a repayment plan but are struggling to afford it, discuss with your supplier whether they could lower the payments and extend the repayment period.
Suppliers need to know that you can pay ongoing bills as well, so if you stress that the current repayment plan will limit your ability to do so, it may persuade them to change the plan.
3. Escalate the matter
Occasionally, suppliers may not agree with your suggested changes. If you believe your supplier has treated you unfairly or your query hasn’t been resolved within eight weeks, you can escalate your case to the Ombudsman Services: Energy.
The Ombudsman will investigate your complaint and make recommendations about how it should be sorted out.
Escape high energy bills to help your business thrive
Keeping your business free from debt isn’t always easy, but by making some smart decisions, you can at least make sure your energy bills are more than manageable.
THE EMOTIONAL AND FINANCIAL COST OF WORKING WITH OUTDATED TECHNOLOGY
Slow Tech Could Waste 24 Hours of Worktime a Year
In this digital age, businesses are hugely reliant on technology to get work done. And this is especially the case for one-man-bands and small home-based businesses who may count on a single computer to keep things running smoothly from their home office space.
This said, if the technology at hand is slow or outdated, it could become more of a hinderance than a help. Investing in upgraded tech may seem like a steep expense, however, delays cost time and time is money. In fact, recent research looking at the impact of tech troubles in the workplace found that delays caused by slow technology could add up to a hefty 24 days’ worth of worktime a year per person.
Here’s why keeping hold of outdated tech when its past its best could cost your business in the long run.
The biggest tech hold-ups
Delving deeper into the research, it’s evident that the most time can be lost on some of the smallest of tasks. Simply waiting for your computer to boot up, for example, can add up to 8.8 days of lost time over the space of a year (17 minutes a day), while 8.5 days can be lost to opening emails (16.5 minutes a day). Slow software has the most to answer for, however, contributing 10.4 days’ worth of wasted worktime (20 minutes a day). When you think about your own day rate or that of an employee’s, this lost time all adds up to some serious money, right? Probably more than it would cost to upgrade your tech.
Productivity can suffer too
Glitchy tech may not only cost your business time and money; productivity can take a serious hit too. According to the study, a third of workers admit losing motivation when they have to wait on tech to respond. And this comes as no surprise. When faced with freezing programmes and buffering browsers every day, frustration can build up. And when someone’s suffering frustration, productivity and motivation can drop. As a result, it may turn out it’s not just the tech that is slowing down tasks, but a reduction in employee efficiency too.
Tech expert and anti-futurist, Theo Priestley, argues that the issues caused by outdated tech at work can even have a negative effect on someone’s work-life balance and wellbeing. He explains, “not being able to complete work or feel productive or have a sense of accomplishment in a task can be a stressful experience. And depending on the nature of the work, more often than not, employees will need to work additional hours to compensate for the wasted time, which has a knock-on impact on personal and family life.”
Outdated tech can put your business at risk
Beyond the costs to your business, outdated tech can also put it at increased risk of cybercrime. The older the technology, the easier it is for hackers to exploit it. What’s more, if you don’t update your security software regularly, it won’t be equipped to address the latest security threats.
Priestley explains “outdated technology and software means easy exploitation from inside and outside the organisation. If you’re not using the latest versions of operating systems, or software that you’ve invested in, then there’s greater chance for someone to exploit known weaknesses in that system and expose or steal data or valuable company information from them.”
What is the solution?
Regularly assess what condition your hardware and software are in and where delays are occurring. If you find yourself waiting on the same problem day in day out, it’s probably time to do something about it. But how often should you be upgrading your IT equipment?
In general, a computer being used for business could do with being upgraded every two to three years for optimal performance. Alternatively, sometimes simply upgrading the memory or hard drive can help applications run more quickly. Any other equipment such as printers, keyboards, etc. only really need to be replaced when they break.
As for software, upgrade it regularly. While it can be a temptation to stick with older versions that you’ve grown accustomed to, the newer versions will offer improved capabilities, efficiency and security.
While computers slowing down over time seems inevitable and something that we’ve accepted will happen, it’s important for businesses to recognise the problem can have a bigger knock-on effect than you may think. By investing in updated, efficient technology, the savings experienced via productivity are likely to vastly outweigh the price of the tech itself. So, next time your computer freezes, perhaps consider whether it’s time for an upgrade.
OFFSHORE COMPANY FORMATION TACTICS FOR SMEs
James Turner, Director at company formation specialists, Turner Little
Starting a business brings with it its own set of challenges, as well as opportunities. But when setting up a business, the where is often as important as the how, and knowing what to expect in terms of company formation regulations and requirements is key, so you can start your entrepreneurial journey on the right foot.
James Turner, Director at company formation specialists, Turner Little, takes us through what we need to consider when it comes to offshore company formation, and the benefits it can offer start-ups and SMEs.
“Despite what the media will have you believe, there are numerous legitimate reasons to use an offshore company. Offshore companies can often provide SMEs with access to better infrastructure and legal frameworks. Regulations in different parts of the world could prove to be restrictive for businesses by preventing foreign entities from launching factories, buying property or investing in local companies. In this instance, setting up an offshore company can help in completing transactions and provide you with the ability to hold any local assets necessary,” says James.
“However, one of the fundamental reasons for setting up an offshore company is often privacy. Moving assets or setting up a business is often done in a country that offers more tightly protected data security, has a robust legal framework and a network of service providers that streamline the setting up process. Switzerland is often the country of choice when it comes to privacy, as it’s synonymous with security and data privacy. Another reason SMEs should consider setting up an offshore company is tax efficiency. Tax advantages are offered by different jurisdictions. For example, Singapore has one of the lowest corporate tax rates, while the Cayman Islands might be more ideal for freelancers who are looking to minimise the effective tax rate on their businesses,” adds James.
“Offshore companies provide SMEs with the ability to mitigate risks that arise from political instability or currency volatility. We have already seen businesses starting to register European entities in order to limit their exposure to the fallout that may result from Brexit. Whatever the reason, spreading your operations across jurisdictions may be the best long-term business strategy SMEs can adopt to secure future growth,” adds James.
Turner Little specialises in creating bespoke solutions for individuals and businesses of all sizes. The knowledge and expertise of their specialists will be able to assist with any enquires, no matter how complex.
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