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Utilities red flags: what to look out for when signing a contract

When it comes to signing a new utilities contract, there are many red flags that a business should be on the lookout for. Here, we outline a few.
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For businesses looking for a new supplier, cost is often a huge driving force behind the decision making – but how can you be sure the provider you choose is the cheapest available? Here are some utilities red flags to consider.

When it comes to choosing a supplier for basic utilities, many small and medium-sized businesses look first and foremost to the costs, which can mean missing the red flags. For many businesses, the bottom line is the key priority and, while there are other factors to consider, it cannot be denied that finding the right price for these services is imperative.

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Recently, there have been rises in wholesale prices of gas and electricity. Along with other increasing charges, the Ofgem Supplier Cost Index found that supplier costs have risen by 15 per cent over the past year, which has led to concerns that these costs will be passed on to customers.

However, Ofgem warned suppliers against significant price hikes as most will have made wholesale purchases as much as 18 months ago, making the actual impact to the businesses less damaging.

Regardless of whether there are significant price hikes this spring, it is worth noting how reactive the industry can be. What might seem like a good deal now may end up costing you more down the line – and business rates tend to change more swiftly than domestic prices. With this in mind, longer-term contracts can often give more certainty.

Rollover tariffs

Rollover tariffs have gained some notoriety in the press lately as it has emerged that many businesses have ended up being rolled over on to a new contract without even being aware it was happening.

Ofgem recently introduced a raft of challenges to help battle this issue, and now within ten days of a contract being agreed or extended, the customer should receive written copies in plain language.

The supplier is also required to send notice approximately 60 days (but no longer than 120 days) before the end of contract to prompt the customer to take action and switch if they so desire. After receiving the letter, the customer will have around 30 days to switch or re-negotiate, but if they do not contact their supplier they will be rolled over.

This sounds much more reasonable, but in reality 30 days can pass in the blink of an eye at a fast-paced SME, especially when there is nobody directly responsible for supplier contract management.

Best practice would be to monitor the contract length yourself, rather than relying on the supplier, and make a note of when you are due to switch. If you’re happy with the service, great – no further action required. However, if you’re not entirely happy at least this way you have enough notice to re-negotiate a better deal, or go elsewhere.

Some do’s and don’ts

When it comes to shopping around for the best price for a utilities contract, price comparison sites might spring to mind – but they’re not always a good source of information for businesses.

Firstly, not all suppliers advertise on comparison sites, so you’re not getting the overview of the market you might be led to believe. Secondly, some of the information is likely to be misleading. Supplier contracts are negotiated on a customer-by-customer basis, and prices can depend on a range of factors, such as business size, location, sector, annual consumption and credit rating. Price comparison sites may show you the cheapest deal without all of the information necessary to make an informed decision.

Cold callers from suppliers and brokers are also red flags – validate any information they give you over the phone with your own research, and don’t make any spur of the moment decisions or feel pressured to switch.

If your business can do so, consider paying your bills by direct debit rather than making manual payments – it is often cheaper to do so.

Finally, accept that there is no substitute to good old fashioned hard work. There are no short cuts, and some research will be required to find the cheapest option for your individual business requirements. Read lots of reviews, ask for lots of quotes from different suppliers, ask them questions and assess them on a case by case basis, and investigate any red flags.

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About Author

Letitia Booty

Letitia Booty is a special projects journalist for Real Business. She has a BA in english literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.

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