Energy Guides

What types of business energy contract are there?

Many assume that signing an energy contract involves hand-signing a paper contract to make this legally binding. However, there is more than one way to legally ‘sign’ a business energy contract; our guide below explains this in more detail.

What types of business energy contracts are there?

Here, we explore the different business energy contracts you can legally ‘sign’

Paper Contract

A paper contract is a contract provided by your business energy broker (third-party intermediary) or directly from your business energy supplier that is a hard copy of the contract. This contract will include all the terms and conditions you agreed with the energy supplier.

It will include the following:

Your registered business name
Your company registration number (if LTD)
Your registered business address
The supply address
The full name, home address and DOB of the person responsible for the contract. (This isn’t always requested, but most suppliers want this information, even for LTD companies)
Your agreed business energy tariff costs include the rates, the standing charge and any commissions included if signing through a broker
The contract term
Your direct debit amount and due date
The total annual cost of the contract
The terms and conditions of the contract include fees for early termination, securing your ability to pay when the supplier could stop your supply and much more

As there is no cooling-off period for a business energy contract, ensure you read this thoroughly and agree to all the terms before signing.

Once you have hand-signed this document, you must retain a copy for your records and return it to your broker or supplier as quickly as possible to ensure the contract remains valid.

This is because business electricity prices and commercial gas rates constantly change, and the contract may become invalid if there is a significant price change.

You can scan a copy of this contract and email it back to your supplier or broker to ensure you don’t miss out on the agreed-upon prices. We recommend not sending it by post because it may take too long.

Digital paper contract

A digital paper contract is a soft contract that your broker or business energy supplier provides via a digital platform that will be emailed to you. The platform will trace your IP address and allow you to sign the document digitally. This will then automatically return to your broker or business energy supplier, who will be notified by the platform that you have signed.

Just like a hard copy of a business energy contract, your digital paper contract will also include the following:

Your registered business name
Your company registration number (if LTD)
Your registered business address
The supply address
The full name, home address and DOB of the person responsible for the contract. (This isn’t always requested, but most suppliers want this information for a credit check)
Your agreed tariff costs include the rates, the standing charge and any commissions included if signing through a broker.
The contract term
Your direct debit amount and due date
The total annual cost of the contract
The contract’s terms and conditions include fees for early termination, securing your ability to pay when the supplier could stop your supply and much more.

Once again, ensure you read carefully, as there is no cooling-off period. Once you have signed and finished, you will be sent a copy of the signed contract – make sure you keep it in case you have any queries or complaints.

Verbal Contract

Many brokers and business energy suppliers prefer to establish verbal contracts while you are on the phone. These contracts are legally binding, even though you may not always receive a written copy or a recording of the conversation.

Verbal contracts can take around 20 minutes to complete, and it’s possible to miss some details during the call. Therefore, it’s essential to listen carefully to everything being said before you confirm your agreement.

What to look out for:

The caller will be reading a script, and they must read the contract verbatim.

They will recite all the information that you would typically receive in a soft or hard copy of a contract, such as:

Your registered business name
Your company registration number (if LTD)
Your registered business address
The supply address
The full name, home address and DOB of the person responsible for the contract. (This isn’t always requested, but most suppliers want this information, even for LTD companies)
Your agreed tariff costs include the rates, the standing charge and any commissions included if signing through a broker
The contract term
Your direct debit amount and due date
The total annual cost of the contract
The contract’s terms and conditions, including fees for early termination, conditions under which the supplier could stop your supply, and more

When listening to the verbal script, pay close attention to the business energy rates totals, business energy standing charges and contract terms, and ensure that the information you provide is accurate.

Sometimes, a verbal addendum to this agreement may be necessary at a later date. The caller does not have to reread the entire script, but they will need to confirm the time and date of the call, their name, your company details, and outline what has changed from the original call. You must agree to this change for the contract to remain binding.

Lastly, request to be sent an email with a copy of your verbal agreement, including any verbal add-ons. This ensures you have a record of the contract and the agreed-upon terms. Brokers and business energy suppliers are only required to keep a copy of the agreement for one year, so if you need to dispute the contract in the future, you will need your copy.

We also recommend requesting that all documents, including the terms and conditions, be sent in a soft copy for your future reference.

Long-term vs. Short-term Business Energy Contracts

When you decide to take out a business energy contract, you will need to decide on whether you want to take out a fixed short- or longer-term contract, which can be a tricky decision to make with the current market.

In the guide, we look into the differences, pros, and cons to help you decide on what length of contract is best for your business.

Differences between fixed long-term and short-term contracts

The only real difference between a long-term contract and a short-term contract is that a short-term contract is generally classed as a fixed 1-year contract, and a longer-term contract is a fixed contract of anything between 1 and 10 years.

There are pros and cons of each; let’s look at these in more detail.

Pros of a long-term business energy contract

Contract period: The contract period is typically anything over 1 year. Some business gas suppliers offer up to 5 years. If you are a large business energy user, some suppliers may even offer up to a 10-year business energy contract to win your business.
Budgeting: Securing a fixed-term contract for longer than 1 year gives you security for your business, letting you know what you will be paying, and makes budgeting easier.
Long-term property leasing: If you have taken out a long-term lease on a business property, securing a long-term business energy contract will cover you for as long as your lease.
Administration: Comparing business energy is a time-consuming process, time that you could be spending on your business. Securing a long-term contract takes the hassle out of setting up a new contract each year.
Price: Generally, a longer-term business energy contract will have a cheaper unit rate than a short-term energy contract, making it appealing.

Cons of a long-term business energy contract

Price decreases: If you are locked into a long-term contract, you won’t be able to benefit if prices fall during your contract, as it’s not simple to end your contract early.
Termination fees: A long-term contract will be subject to a much higher termination fee if you want to leave early, as generally, they would expect you to pay back the energy purchased for the entire contract.
Energy usage increase: If your energy usage increases during the contract term, you won’t benefit from the cheaper rates associated with this.

Pros of a short-term business energy contract

Contract period: The contract period is typically 1 year or less for a short-term contract.
Short-term property leasing: If you are only taking a short-term property lease, then a short-term contract will match your leasing options.
Financial and Credit: A short-term contract can help those struggling financially or have credit issues, as a business energy supplier is more likely to accept you for a shorter period to cover the risks without needing a security deposit.
Price: With the uncertainty of the market, a short-term contract may feel a safer option for your business when waiting to see if the prices will reduce; you may want to just fix your energy price until 2024 to see if the energy market stabilises.
Flexibility: With a short-term contract, you have the flexibility to continue to search the market for prices and switch more often as prices come down. You can compare business gas and business electricity prices here to see the trends in the market.

Cons of a short-term business energy contract

Administration: A short-term contract must be continuously reviewed yearly, adding administrative costs and time to your business.
Long-term budgeting: You cannot forecast your business budget for longer than a year, as these prices could dramatically change every time you sign a new contract.
Availability: Not all business energy suppliers offer 12-month contracts, so your options may be limited.
Security: You won’t have the security with a short-term contract of locking in lower prices; if the prices rise near the end of your contract, you will have to pay more for your energy usage.