4 March 2010 | Adviser Q&A

Our company uses an energy consultant to find the best deal for gas and electricity. During recent negotiations the consultant has only found deals where we would have to pay a substantial retainer. Is this normal, and what can be done about it?

Buyer, Herefordshire

MARTIN RAWLINGS, director, Blizzard Utilities

The supplier is not asking for a retainer. It is asking for a security deposit because your credit history check has come back with a poor rating.

A general loss of business confidence and the downgrading of credit ratings have meant many utility suppliers now run credit checks at the demand of their trade credit insurance providers, which cover bad debt risk.

Deposits demanded can be the equivalent of two to seven months’ expenditure.

However, we are surprised your energy consultant has not advised you of how to get round the request for a security deposit. We have set out below some advice that may be of assistance:

1. Start contract negotiations in plenty of time.

2. Shop around. Not all suppliers will be asking for a deposit.

3. Does your parent company have a better rating?

4. Be prepared to provide key financial information to the supplier.

5. Be prepared to negotiate.

BOBBY COLLINSON, managing director, Power Efficiency

The use of security deposits, which is what I think you are describing as a retainer, has become much more common since the onset of the economic downturn. Energy suppliers were caught on the hop, just like everyone else, and have introduced tighter credit checks and security deposits to insulate themselves from the risk of customers not being able to pay their bills.

Credit checking is a binary decision: you pass or fail. The outcome determines whether the supplier will sell to you, or have prerequisites to the trading agreement. Providing as much information as you can to support the liquidity of the company will increase your chances of passing and avoiding the deposits, of which more than £350 million is held by the industry.

We have successfully negotiated out of a number of security deposits for clients or introduced flexible terms that do away with a substantial upfront cash payment, through larger initial monthly instalments. A proportion of this forms a deposit building in an escrow account over a fixed term. 

CHRIS BOWDEN, managing director, Utilyx

It’s true that the recession has had an impact on competition in the energy sector as suppliers have faced increasing problems obtaining credit insurance for some commercial and industrial customers.

Make sure your consultant negotiates directly with the supplier to see if any security deposit can be reduced or waived. Often credit insurance is refused based on the performance of a certain industry, so if your company has a particularly strong balance sheet, offer to make your books available to the supplier. This may help them take a different view of your default risk.

One of the key things must be for your consultant to offer your business to as many suppliers as possible. We have increasingly found that open dialogue with suppliers alongside competitive tendering is the best ways to ensure the most favourable contract prices.

Key points

• Energy suppliers are demanding security deposits more since the downturn

• Give suppliers as much financial information as you can to show your company is not a default risk

• It’s worth negotiating to try to reduce the deposit

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*Please note: responses can only be given on this page, represent writers’ personal views and should be regarded as general guidance only. The adviser panel includes experts from a range of disciplines