Small businesses fearful for the future as debt crisis mounts
As the cost-of-living continues to bite, small businesses are facing an energy debt crisis of their own.
Recent data from Ofgem has shown that the total combined debt from the smallest businesses reached a record £700 million in the first part of 2023.
Citizens Advice data supports this, showing that in the second quarter of 2023, around 15% of microbusinesses owed their supplier money. The debt burden on these businesses is enormous. Looking at the same period, the average debt owed per business was £3700 for gas, and over £5500 for electricity. This is up to three times more than that held by the average domestic energy consumer.
Getting into this much debt is dangerous for small businesses. Non-domestic energy consumers don’t have the same protections as domestic consumers. This means that it’s easier to disconnect a business from their energy supply if they don’t pay their bills. Disconnection for debt should always be a last resort, as it often means ‘game over’ for a small business. Without an energy supply, the business is often unable to trade, dramatically curtailing their ability to ever pay back what they owe
No way out
Despite these severe consequences, more small businesses than ever are getting in touch with our advice services because they’re struggling with debt. For example, in 2022, we saw more debt cases from microbusinesses than in 2020 and 2021 combined. Many of these customers are at rock bottom. In September 2023 alone, half of our debt cases were from disconnected businesses — or from those imminently at risk of disconnection.
Even though more customers are struggling, our data shows that energy suppliers aren’t doing enough to help businesses in trouble:
The complaint ratios used to rate supplier performance in our League Table have increased by 158% since 2022. These ratios measure complaints received by services like the Extra Help Unit and Energy Ombudsman. The League Table compares how many each supplier gets. This rise in serious complaints from customers indicates a big increase in problems experienced. This suggests that the help offered by suppliers isn’t working well. Again, this is backed up by our data, which shows that many customers seeking repayment plans or reduced upfront payments are ignored.
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Getting into debt doesn’t have to spell the end for a company. When suppliers have good, consistent debt management policies, the customer outcomes are better. However, where help isn’t available, debt can soon build to unmanageable levels.
A real-life case study from our advice services.
Gabriella runs a small business and got into debt with her supplier. She wasn’t aware of this debt until collectors came to her premises and threatened disconnection.Gabriella offered to pay half the debt up front and the other half the following month, but this was denied.
The next day a prepayment meter was forcibly installed, before she’d even been able to escalate a complaint with her supplier. To get back on supply, she’ll need to pay all her debt upfront, in addition to reconnection fees and even a security deposit. All these payments together are not affordable, and Gabriella’s business could be at risk.
If she’d been able to pay her supplier back over time, none of this would have happened.
Decisive action is needed to save small businesses
As 2024 approaches, more and more small businesses are falling into crisis. Urgent action is needed to prevent the unnecessary loss of small businesses across the country. Ofgem and energy suppliers must work together, and take the following actions to support microbusinesses in debt.
Recommendations
Over the past few years, we’ve seen more suppliers offer greater support to their customers in debt. Examples of this support include: improved customer service; the introduction of repayment plan negotiations and even bill support.
However, it is clear from our data that this practice is not widespread, and many small businesses are at risk of falling through the cracks. We want to see all non-domestic suppliers accelerate the take up of good practice for supporting customers in debt.
Specifically, we would like to see all suppliers
- Bill accurately and identify debt early
We know that failure to bill customers correctly can lead to large debts piling up. Energy suppliers should engage with their customers to make sure they’re using accurate meter reads to calculate bills. - Bill regularly and communicate with customers
The smallest businesses engage with the energy market much like regular households. This means that they benefit from regular bills, communicated clearly, to help them keep on top of their energy usage. - Provide better support microbusiness customers in debt
Unaffordable repayment plans can devastate a business. Energy suppliers should work with their clients to explore multiple options for managing their debt. These options could include payment plans and breathing spaces.
These actions must be backed up by appropriate rules in order to be effective. To provide consistent support, energy suppliers need clear guidance and regulations. Ofgem’s recent Market Review puts forward new proposals, including better advice signposting. However, we’re concerned that these plans don’t go far enough. Ofgem should urgently consult on whether more rules are needed, to make sure that suppliers do all they can to prevent disconnection.
As part of our official role, Citizens Advice also advocates on behalf of microbusiness energy consumers. This means that we provide advice and support for small businesses, and work hard to make sure their voices are heard. Read more about our energy policy work here.
