Britain’s big energy companies are forcing as many as 250,000 small businesses to pay for their energy up to seven months in advance, it has emerged.
Alistair Buchanan, chief executive of Ofgem, the energy regulator, called the companies including Scottish Power, British Gas, EDF Energy, E.ON, RWE Npower and SSE to a meeting in London recently to express mounting concern about the practice, which it is feared could put companies into real difficulty.
Stephen Alambritis, at the Federation of Small Businesses, estimates that about one million of Britain’s 4.7 million small and medium-sized businesses have been contacted by their energy companies in recent months and informed of tougher payment conditions in a move designed to help to shield suppliers from the impact of the growing number of companies entering insolvency.
About a quarter of those some 250,000 small businesses employing 2.5 million people, have been asked to pay an element of their bills upfront, Mr Alambritis added.
Scottish Power, E.ON and British Gas are among those to have tightened their credit conditions recently.
Nick Campbell, an energy trader at Inenco, the consultancy, estimates that UK companies are now being forced to pay up to £350 million in advance for their energy. He said that suppliers appeared to be targeting businesses by sector and that industries heavily exposed to the downturn such as manufacturing, car-making, construction and retail were particularly hard hit.
“There is less risk appetite where these businesses are concerned,” said Mr Campbell. “The vast majority of businesses in these sectors could expect to be hit by these restrictions.”
About 40,000 UK companies are expected to enter insolvency during 2009, a 62 per cent increase on 2007.
Jeremy Nicholson, director of the Energy Intensive Users Group, the lobbying organisation, said some companies in the ceramics industry had been asked to pay seven months’ worth of their energy bills upfront a trend that he described as “beyond belief” in the current environment.
The problem has intensified because credit insurers, which pay the bills of companies that are insolvent, have withdrawn from certain industries amid a surge in business failures.
David Cockshott, head of corporate sales at Npower, said that as many as 60 per cent of new customer applications were now being rejected by trade credit insurers, up from 5 per cent two years ago.
The lack of cover has prompted energy companies both to demand deposits and to seek payment of invoices in as little as five days or customers face having their supplies cut.
Mr Alambritis said he was “very concerned”. “The energy companies have started using some very aggressive tactics. They have been concerned by the high level of bankruptcies. But asking for money upfront puts businesses in an even more precarious situation.”