Business energy credit checks and security deposits

Before it agrees to supply your business, a supplier will usually check how much of a credit risk you represent. Most applications go through without any issue. Where a supplier sees risk, though, its options are to decline you, offer different terms, or ask for a security deposit to protect itself if you do not pay.

None of this is unique to energy: it is the same kind of check a bank or a wholesale supplier might run before extending credit. This guide covers how the checks work, how deposits are set, and what to do if you are asked for one.

What is a credit check for business energy?

A credit check is how a supplier judges the risk that your business will not pay its bills, before it agrees a contract or during it. Ofgem’s best practice guide describes creditworthiness assessment as covering some or all of: a credit check on the business (and sometimes its owners or directors), an individual assessment of the risk you represent, and, for larger consumers, independent assessment by insurance underwriters.

Suppliers following Ofgem’s best practice would tell you, in a clear and timely way, how they assess creditworthiness and roughly how long the assessment takes. Some publish a high-level version of their process on their website. Crown Gas & Power, for example, says it uses credit reference agency checks and industry data, then aims to tell applicants the outcome within one to two working days.

A poor result does not automatically mean refusal. It usually means the supplier looks for a way to manage the risk instead, most often a security deposit or a different payment method.

What is a business energy security deposit?

A security deposit is money a supplier holds to cover the loss it could face if you stop paying. Ofgem describes it as one of several tools suppliers use to manage credit risk, alongside credit insurance, bank guarantees and upfront payments. It exists so that a business assessed as higher risk can still get an offer of supply, rather than being turned away.

Whether to ask for one, and how much, is the supplier’s decision. Ofgem’s guide is voluntary best practice, not a rule suppliers must follow, though Ofgem says it monitors how suppliers apply it and would consider stronger rules if practice does not improve.

How do suppliers decide whether you need one?

If an assessment finds credit risk, Ofgem’s best practice guide says a supplier should tell you in writing:

• that it has assessed your creditworthiness and you have not met its threshold
• the basis for asking for a deposit and how the amount was calculated
• when the deposit will be repaid
• whether it can offer an alternative to a cash deposit, and how to ask for one

In practice, whether an alternative exists is down to the individual supplier, since Ofgem’s guide leaves the choice to each business. It is worth asking directly rather than assuming a cash deposit is the only option.

What other ways do suppliers manage credit risk?

A security deposit is only one tool. Ofgem’s best practice guide notes that suppliers also manage non-domestic credit risk through credit insurance, bank guarantees and upfront payments, and it expects the same principles of transparency, consistency and fairness to apply whichever method a supplier uses. So if a supplier tells you it does not use security deposits, it may still be managing your risk another way, for example by asking for payment in advance of the energy you use rather than in arrears.

Larger consumers are more likely to see bespoke arrangements, sometimes involving independent assessment by insurance underwriters rather than a standard deposit calculation. Ofgem’s guide accepts that some of its detail will not apply neatly to the biggest, most complex accounts, while expecting the same fairness principles to hold.

How is the deposit amount worked out?

There is no single formula every supplier must use. Ofgem’s guidance says the size of a deposit should reflect two things: your assessed level of credit risk, and how often you are billed. A business billed quarterly can expect to be asked for more than one billed monthly, because more unpaid usage could build up between bills.

Ofgem also reports that some suppliers, when asked about their methodology, said they calculate deposits using around three months’ estimated consumption, which they linked to how long it would typically take to disconnect a non-paying customer. Ofgem has been clear this is not a mandatory maximum, just what some suppliers told it they use, and it may update its guidance on reasonable levels as it gathers more evidence.

Crown Gas & Power’s own published process gives a real example of how one supplier applies this: the deposit is set as a share of your estimated 12-month exposure, based on your unit rates, standing charges and consumption profile, and is unique to each customer rather than a flat fee.

Factor	How it typically affects the deposit
Level of assessed credit risk	Higher risk generally means a larger deposit, or one requested where a lower-risk business would not be asked for one
Billing frequency	Quarterly billing tends to mean a larger deposit than monthly billing, because more usage could go unpaid between bills
Estimated annual consumption and rates	Deposits are usually calculated as a share of your likely annual bill, not a fixed sum for every business
Change in your circumstances	A material improvement in your creditworthiness during the contract can support a request to reduce or refund part of the deposit

If you are not told how your deposit was calculated, Ofgem’s best practice is that you should be, so it is reasonable to ask.

Can you get a deposit reduced or refunded?

Yes, in two situations: during the contract if your circumstances improve, or when the risk it was covering ends.

During the contract, Ofgem’s guide says suppliers following best practice would let you ask for a partial or full refund if your creditworthiness improves materially, for example if you have cleared debts or built a stronger payment record. You may need to provide evidence, and the supplier can take a reasonable time to review it. Suppliers are not expected to keep re-evaluating in response to repeated requests over a short period.

At the end of the relationship, once your meter point moves off supply and all charges are settled, Ofgem’s guide says the need for the deposit is removed. Suppliers following best practice should either use the deposit to offset your final bill and flag this clearly on the bill, or repay it promptly once the final bill and any debt are cleared. Practical steps that help this go smoothly:

1. Tell your supplier as soon as you know you are moving out or closing, and give it a final meter reading, ideally taken on your last day of occupancy.
2. Keep your Companies House record up to date, since this can be part of how a supplier reassesses your creditworthiness.
3. Respond promptly to any request for financial information, both during the contract and after it ends, until the deposit is returned.
4. Ask in writing for a re-evaluation if you believe your position has genuinely changed, and be ready to show what changed.

How safely is your deposit held?

Your deposit is not sitting in a ring-fenced account protected by law the way, say, a tenancy deposit is. Ofgem expects suppliers to adhere to the Financial Responsibility Principle in their supply licence, which requires them to manage their business, including money they hold, in a way that is financially responsible. Ofgem’s best practice guide translates that into a specific expectation for deposits: suppliers should manage deposit money responsibly at all times and have adequate financial arrangements in place so they can actually repay deposits within a reasonable timeframe when the time comes.

That is a supervisory expectation on the supplier, not a guarantee to you individually, which is why what happens if your supplier fails (see below) is a genuinely different risk to understand.

What if you fail a credit check when switching?

A poor credit result does not usually stop you switching outright, but it can affect the offer you get. See our guide on how to switch business energy supplier for the wider switching process. If you are turned down by one supplier, others may assess you differently, particularly through a broker who knows which suppliers are more likely to accept your kind of business. Our guide to energy brokers explains what a broker can and cannot do for you, and how they are paid.

A newer business with no trading history can be assessed as higher risk simply because there is less data to go on. Our guide to business energy for new businesses covers what to expect if you are setting up a supply for the first time.

What happens to your deposit if your supplier goes bust?

This is a real gap in the protection. Ofgem has noted that microbusinesses whose supplier fails “lose their credit balance and security deposit, through no fault of their own”, because deposits held by a failed supplier are not ring-fenced or protected the way personal savings are. If your supplier fails, Ofgem’s supplier of last resort process moves your supply to a new supplier automatically, but any deposit held by the failed supplier is not guaranteed to transfer with you. Our guide on what happens if your energy supplier goes bust covers what to expect and how to check your position.

How to reduce the chance of being asked for a deposit

• Keep your Companies House filings current, since out-of-date accounts can make your business look riskier than it is.
• Pay bills on time and keep a clean payment record with your current supplier, which supports a future re-assessment.
• Consider monthly billing over quarterly if a supplier offers it, since Ofgem notes this can reduce the deposit a supplier asks for.
• Ask what the supplier’s process is before you apply, so you know what to expect and can compare it with other suppliers or ask a broker for one more likely to accept your business without a deposit.
• Query any deposit that seems disproportionate to your actual usage and ask for the calculation, since Ofgem’s best practice expects suppliers to explain it.

None of this guarantees you will avoid a deposit. Suppliers following Ofgem’s guide make the final decision based on the risk they see, and different suppliers assess the same business differently.

When you are ready to compare offers, you can compare business energy quotes with us.

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