Energy users face credit and supply crisis

Commercial energy users continue to face difficulties negotiating credit terms in their electricity and gas supply contracts, leading many of them to be asked for large up-front payments, according to a trade lobby.

The economic crisis has had a negative impact on corporate financial performance and this has affected the credit rating of many companies and how commercial suppliers insure against them. In turn this has had a knock on effect to their access to essential supplies such as energy.

The problems arose at the beginning of 2009 when trade credit insurance was withdrawn on energy contracts for those customers suffering from down graded credit terms and operating in specific sectors thought to be at specific risk to the recession.

At one time two thirds of applications made by npower, a large energy supplier in the UK, for credit insurance on new customer supply contracts were being refused. In 2009 £100m worth of insurance was withdrawn for npower’s customers.

Whilst the situation has improved slightly, there are still a large number of businesses faced with the need to lodge large cash deposits, worth up to six months of consumption, in order to keep the lights on, said the Major Energy Users Council (MEUC).

Energy providers are one of the only suppliers that require businesses that they consider to be at risk of insolvency to make a large deposit payment up front—rather than trading on credit. This is because of the lengthy processes and time involved in disconnecting customers in default.

The MEUC is conducting a series of roadshows around the UK with the aim of explaining to companies how they can keep these calls for cash down.

“Customers, suppliers and trade credit insurers must work together to rebuild confidence,” said Andrew Bainbridge, director general of the MEUC, who was speaking at a press conference ahead of the first roadshow.

“Insurers need to examine each application on its merits and call for further information if required. Customers and suppliers must work closely together to ensure that up to date information forms the basis of each application when it is thought a problem could be encountered,” added Bainbridge.

Tim Smith, managing director of Marsh's trade credit practice, which is supporting the MEUC initiative, added: "We urge all companies to become more transparent with their financial information and to begin conversations with undwerwriters at an early stage so that they can continue to receive cover. Insurers are no longer willing to give customers the benefit of the doubt."

Wayne Mitchell, head of consultant sales for npower, said: "We are calling on credit insurers to use a bespoke customer approach rather than withdrawing cover altogether from particular sectors that are seen as high risk."

“We find that customers who understand the full impact of their credit risk are much more likely to talk openly to us—and, together, we can discuss every option available,” added Mitchell.