The government’s cut in support for businesses on their energy costs announced in the new Energy Bills Discount Scheme was expected, but the scale of it has left some high energy use sectors gasping. Overall, the new arrangements mean an 85% cut in the discounts for the business community from £18bn in six months under the old scheme to only £5.5bn over the next year. This means over £30bn less for embattled businesses on an annualised basis.
The impact on customers
Many energy customers were already struggling to pay their bills before this savage cut in support. Certain energy-intensive sectors have been given extra support, including food and other manufacturing. Others have not, most notably hospitality, bricks and mortar retailing and leisure activities such as indoor sports and entertainment. The government’s own announcement highlights the example of a pub, which would have received over £3,000 help under the old scheme, but will now receive less than £200.
It is inevitable that there will a major escalation in payment issues and, sadly, some customers will be forced to throw in the towel and cease trading. Others will fight on, but they will need forbearance and maybe some debt forgiveness by suppliers to survive.
Suppliers and customers should be in this together
No business is an island, not even a major energy supplier. Every commercial customer failure means job losses and losses for other creditors, which translates into domestic customers and other businesses who in turn cannot pay their energy bills. It must be right to take a constructive approach in this crisis.
This is not only justified in overall economic and community terms, but the government already has the energy industry and its business practices in its sights. At the same as the new scheme was announced, the Chancellor wrote to the industry regulator, Ofgem to reinforce concerns about complaints made by some smaller non-domestic customers about their experiences over increased standing charges, prohibitive contract renewal terms and the decision by some individual suppliers to withdraw from servicing particular sectors. How customer payment issues are dealt with now is bound to come under public scrutiny.
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Collecting commercial debts
Despite the recent rash of energy supplier failures, the industry remains robust. Never the less, this should not mean that a ‘slash and burn’, debt collector and bailiff-led approach to unpaid debts is the right answer, even if it might appear to be the most efficient way of dealing with a rapid deterioration in a supplier’s commercial receivables portfolio. Just because bad debts may not be significant to a supplier’s profits, doesn’t mean that they should be crystallised unnecessarily through hasty enforcement action.
An overdue account does not have to mean a write off and the destruction of the business customer. The UK has a healthy business rescue culture and a broad range of restructuring tools that can preserve indebted businesses and the jobs they support. It has an insolvency profession eager to work to identify and implement restructuring solutions.
What should struggling customers do?
There are two simple answers. The first is to open a dialogue with their energy supplier about unpaid debts to see what options the supplier will offer to phase payments. Staying silent and waiting for enforcement action is absolutely the wrong choice, because this problem will not go away.
The second is to get an independent restructuring adviser on board without delay. They practise the art of the possible. They can assess the overall financial position and explain the possible routes to a solution. If necessary, they can negotiate with the supplier. Once the optimum way forward is known, they can help to implement the agreed strategy.
A positive outcome?
This energy cost crisis doesn’t have to turn into an insolvency catastrophe, with the wholesale culling of sectors, such as the pub trade or the health and fitness industry. It is surely better for suppliers, customers and advisers to work together to explore a positive way forward wherever possible.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.