24 October 2008 | Andy Allen
Energy buyers fear soaring bills and a restricted choice of providers as suppliers tighten credit in the face of the economic downturn.
Buyers report suppliers have been dramatically increasing the stringency of credit checks for fear of customers defaulting on payments. Soaring energy prices have led many more customers to be considered poor credit risks, they claim. Chris Bowden, managing director of energy consultancy Utilyx, which represents several FTSE 100 clients, said in the worst-case scenario a buyer may fail to attract suppliers to tender.
"Then in theory your current supplier has to keep you on and they will kill you on the renewal rates. You could be paying 10 or 20 per cent more," he said.
Alternatively suppliers may demand up to four months' payment in advance or financial instruments to act as insurance policies, which can stifle the customer's cash flow.
"Margins on supply aren't high and some suppliers don't need the business," Bowden said. "They're getting a bit more choosy about who they supply."
In the most drastic cases, he added, suppliers had stopped bidding for new tenders.
When Supply Management spoke to a selection of energy companies - British Energy, E.ON and BizzEnergy - each denied they are not bidding for new business. Nevertheless, buyers have reported that fewer companies are responding to tenders.
David Kwiatek, group buyer for ESPO, a consortium that buys energy for local authorities, said: "I've heard of some organisations that have found it difficult getting bids when they go out to tender. There is more of an emphasis [among suppliers] on retaining existing business."
Brian Rickerby, joint MD of energy purchasing firm energyTeam, said he had also noticed a shortage of companies responding to tenders. He believes this may be partly due to suppliers finding it hard to deal with the rush of customers who want to sign contracts before October when, for regulatory reasons, many firms renew their energy deals.
Yet many buyers have noticed stricter credit checks taking place.
Energy consultant Chris Lewis, said: "In the past customers have gone bust, owing their energy suppliers a lot of money."
Buyers can improve their chances of attracting suppliers by approaching the market for bids up to four months before contract renewal date to allow suppliers time to carry out credit checks, said Bowden.