Energy prices have risen significantly in the last 5 years. Take a look at your accounts and it’s likely you will see a considerable increase.
Because the price of energy is dependent upon world markets and government taxation, we as business consumers have very little control over the unit price we pay for gas and electricity.
That’s why it’s more important than ever to be proactive in managing your energy contract. There are some very simple yet important steps you can take.
Be aware of your contracted notice period
Did you know that if you fail to give the required notice to your current energy supplier at the end of your contract, you could face significantly higher charges?
Most energy suppliers stipulate you must give them written notice of your intent to switch to a new supplier three months before your contract end date, although terms can vary from contract to contract.
This means you need to be aware of your contract end date so that you can avoid unnecessarily higher charges by renegotiating with your existing supplier or giving the required written notice if you wish to switch to a more competitive supplier.
If you fail to give the required notice and your contract period ends, you could find your supplier applies an ‘Out of Contract’ price to your energy supply (usually significantly higher than a pre-negotiated contract rate). Alternatively, they may roll you over into another fixed-term contract – although without negotiation this is likely to carry a premium to the market rate.
In particular, companies which were in 3 or 4-year contracts could find their costs suddenly rise because market prices for gas and electricity have increased significantly in that time. Plus, because the out-of-contract cost is calculated on a daily basis it can be difficult to predict and manage costs with the same accuracy as before.
Not only will this cost you more, you’ll also be under more pressure to find a new supplier at short notice which could mean you are in a less favourable position when trying to secure the lowest price and beneficial contract terms.
Negotiate your contract
Every business is different so it pays to think carefully about what you need from your energy supplier before you begin the tender process. Terms vary from provider to provider but broadly you should look for:
- Payment terms – Can you pay via Direct Debit or do you require BACS payment terms? This may be dependent on the result of the credit check the supplier has completed on your behalf, but there may be some scope for negotiation on payment terms if the credit check proves positive.
- Consumption thresholds – Many suppliers have standard conditions within your contract that state the minimum and maximum amount of energy you can consume within the contract (i.e. minimum 80% and maximum 120% of the agreed consumption). If you fall outside these levels then you may be penalised, so it pays to research the likelihood of this happening. You can negotiate a variation (or even removal) of these contract terms prior to signing.
- Price – There is generally scope with suppliers to be able to marginally negotiate down the offers they have provided. However, this will depend on a number of factors such as market conditions, the supplier’s keenness to retain business or win new business and the relationship between the supplier and negotiator (a good relationship with a supplier may allow for slightly more leeway to negotiate).
Keep records
Because the market cost of energy has increased, it’s likely you’ll have to pay more for a new contract, but understanding how and when your business uses energy will enable you to predict spend, giving you a greater sense of control over costs.
Good record-keeping means you have all the management information you need to make an informed decision about your energy contract.
When your energy bills come in, take the time to check them. It’s surprising how often mistakes are not addressed. Once you get used to reading your bill, and comparing against production activities, this should not be an onerous task.
Raise queries directly with your supplier at an early stage so that remedial action can be taken and the same mistakes avoided in future. It’s far quicker and easier to prevent an over spend than to claim a refund.
Build your knowledge
You don’t have to become an energy expert but a basic understanding of what’s happening in the energy markets will enable you to be more proactive in managing costs.
We provide a monthly newsletter ‘Energy Brief’ which gives you a brief overview of the UK and world energy markets, covering the major trends which affect our customers. Sign up to receive a free copy from our home page form.
For further information or support in managing your energy supply, please get in touch with our expert team.
