Whether you’re an already-established small business considering switching energy suppliers or a business owner just starting out, getting to grips with energy buying can be a difficult and time consuming process. Utilitywise recently found that one in five business owners struggle to understand their energy bills, with many not trusting the accuracy of their bills. The whole energy buying process should at minimum involve finding a credible energy provider, based upon the service they offer as well as their cost effectiveness. It’s no surprise that some business owners don’t know where to begin. However, there are four key areas which can make energy buying less taxing.

1. Price comparison
Comparing rates per kilowatt hour shouldn’t be your only financial consideration, as standing charges can vary significantly between suppliers. Some could be a few pence cheaper per kilowatt hour, but if they have a high daily standing charge then their total cost could be higher. You should factor in both tariffs when working out supplier costs.

2. Evaluating service
Energy suppliers aren’t just selling you a product, but also a service that requires ongoing maintenance and support. Some energy providers may offer cheaper rates, but without good service to boot they may not be giving adequate value for money. Only through customer reviews can you confidently establish the level of service and additional support that suppliers offer, and if a similar business refers you to a provider, you can be confident that they’re able to fulfil your needs. Other key factors to look out for are the transparency and reliability of providers in ensuring that you will be billed with clarity and on time.

3. Choosing your contract
Particularly when you have fluctuating revenue, it can be difficult to decide what type of contract to go for and how you want to be billed. A fixed contract, popular with small businesses, offers the assurance of a fixed rate for both the energy price and often all associated charges, paid over a set period. Fixed contracts definitely provide budget certainty, particularly for cash light businesses who want long term price security, but there are variances to consider. Some products fix all elements of the bill, while others include variable third party costs such as transportation and metering charges.

4. Understanding your bill
The aforementioned data from Utilitywise suggests that business owners don’t fully understand their bills, and consequently risk being billed inaccurately. It’s key for businesses to understand the following key terms and factors of their energy bills so that they can get a better idea of their energy consumption.

• ‘A’ vs. ‘E’: The ‘A’ stands for ‘actual’ and denotes that the given meter reading figure has been confirmed by a person or an automated meter reading device. The ‘E’ stands for ‘estimated’ and means that the figure is based on previous consumption patterns. To ensure you are only paying for what you consume, you need to ensure that ‘actual’ meter readings are used to calculate your bill each month, which you can do by proactively providing correct readings to your supplier.
• Unit rate: This is simply the amount you pay per energy used, which is usually determined by the location and the length of your contract. The amount you’re billed is this figure multiplied by the amount of kilowatts used or estimated, but remember that standing charges are added on top of this.
• VAT:Unit prices don’t include VAT charges. Usually a standard VAT rate of 20% is payable on business energy bills. However, smaller businesses whose average daily consumption of energy is lower than the ‘de minimis’ threshold of 33kWh (1000 kWh per month) of business electricity or 5 therms or 145 kWh (150 therms/4397 kWh per month) of business gas are eligible for 5% VAT.

Now it’s down to you
As a business owner, becoming savvier with your energy bills and the service your provider gives you is one way to keep on top of your overheads, which can in turn take away a possible barrier to business success. Given the complexity of choosing a provider, establishing your terms, and getting to grips with how you’re billed, it’s key that businesses don’t take energy buying at face value, and instead address what really matters for an effective energy buying strategy.

By Stephen Beard, Head of SME at Gazprom Energy