Utilitywise plc

Sobering credit scores brew high energy bills for pubs

News   •   Jan 26, 2017 10:22 GMT

Sobering credit scores brew high energy bills for pubs

Lower credit ratings for pubs could mean higher electricity and gas bills this Christmas as energy suppliers keep the trade on their naughty lists for being bad payers.

Just like loan firms, energy companies perform credit checks on customers. How well you score influences how the industry prices your business gas and electricity contracts .

Unfortunately, pubs are in a business category that has a bad credit rating because it has a reputation for defaulting on energy contracts. For pubs, it means bigger bills and a big headache for publicans just at a time when the trade is suffering. But there is help at hand.

Brokering a deal

Many pubs are turning to energy consultants to help them negotiate the contractual maze the industry finds itself in. With their extensive knowledge of the industry and connections with energy suppliers that pubs may not have heard of, brokers have become a welcome guide.

So, how does a poor credit risk affect the pub and leisure trade’s bills? Energy suppliers might ask a pub for a security deposit (often around 20% of annual spend) or an increased premium in the unit rate before giving them a contract. If, a pub can’t pay the deposit, the supplier could put them under a ‘deemed defaulter’ rate, which could add a hefty extra 70% on the premium. They could also, if the risk is deemed too high, decline a customer outright.

Brokers can offer solutions tailored to an individual pub’s circumstances. If the pub is a limited company that’s been trading for 12 months, the broker may find a supplier willing to take a second view on it, for example. A broker may also be able to negotiate increased premiums over a longer term if a pub can’t pay a security deposit.

“For pub start-ups it’s often a Catch-22,” said Bobby Robson of UK energy consultancy Utilitywise. “They haven’t filed accounts so they can’t be assessed as they don’t have a history to base it on. But they can’t start trading until energy is connected. There are a few suppliers out there who will accommodate new starters though. You just need to know where to find them.”

An upturn on the horizon

Utilitywise can also help pubs to work out where they are consuming the most electricity and gas, and suggest ways to reduce their bills. Electricity, gas and water are major overheads for pubs, so it makes sense to make savings, however small.

Other good news is that there are signs of an upturn in the industry after what Brigid Simmonds, Chief Executive of The British Beer and Pub Association, calls “a perfect storm of issues between 2007 and 2012 – from the smoking ban, massive tax increases and increased regulation – plus the effects of the economic crisis”.

She added: “Since then, we have seen a change in regulatory approach from the Government, especially through lower taxes on beer, which has boosted confidence in the sector over the past couple of years.

“Pubs should, therefore, not be penalised because of the damaging tax rises we saw up to 2013, which put many pubs under pressure and thousands closing.”

Call for closer collaboration

In 2009, 45 pubs were closing each week. Although closure rates have now slowed to a rate of 21 a week, according to the Campaign for Real Ale (CAMRA), and new-style micro and pop-up pubs are springing up.

Brigid said: “The sector is now looking towards future growth with a growing number of people looking to eat and drink out of the home.

“Penalties on licensees taking on a pub that had previously encountered difficult times are particularly harsh and it is time that provider and user worked more closely together to ensure that everyone benefits.”