Why SMEs must watch out for roll-over energy contracts
Small businesses from across the UK are potentially losing millions of pounds as a result of roll-over energy contracts.
A study from switchmybuisness.com has found that nearly one fifth of firms have been automatically rolled-over on to a new contract, without actually agreeing to it.
Better deals may exist elsewhere for this 18.4% of businesses but many are trapped because the necessary actions were not taken when they neared the end of their deals.
Around a third of firms discovered they were placed onto a “deemed contract”, which occurs when a company continues to use energy when a fixed-deal has finished.
This uses the same supplier but a company can end up paying up to 80% more than previously, according to the study.
A further 16.8% of firms were unsure of whether they had been placed on to a deemed contract while more than half said they struggled to understand their energy bills.
Getting to grips with the bills is therefore essential to small firms who are looking to save costs at every opportunity.
A report from the Competition and Markets Authority in July suggested that the nation’s SMEs are spending around £500 million a year on energy unnecessarily.
More than a quarter of firms were unaware of how to end their current deals, potentially meaning up to 1.3 million businesses may be overpaying.
Greater transparency exists in the consumer market than in the business energy market, which can make it difficult for SMEs to find the best deals.
Similarly, many smaller firms also lack the time and resources to negotiate better deals, meaning it is a tough situation for them to manage.
For firms operating on extremely tight budgets, it could leave them in financial trouble if operating costs drastically increase from one month to another.
Restructuring a firm could be beneficial in this instance as it would help to streamline how the business is run, potentially producing savings that can aid the company in other key areas.
By Phil Smith