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Fixed Rates vs Flexible Tariffs for Business – the Pros and Cons

12th Dec 2016

If you are prepared to shop around for the best tariffs on your utilities bills then you can find some excellent deals. Though for most this is a time consuming and complex matter. Some businesses simply don’t have the time or resources to dedicate to regular audits of their utility usage to assess where savings could be made. Anything that distracts your team away from the daily pressures of their normal job could mean loss of business or service to your customers and who wants to risk that?

Long term, savings can be made and depending on your annual usage, these savings could be significant. Although prices are wholly dependent on the economy and other variables such as the price of oil, however the first step is grasping the value of a fixed rate or flexible rate tariff. Understanding the fundamentals will help you make the best decision for your business so to start off on your money saving journey, read our easy to understand interpretation of this complex arena.

Fixed Rate Tariffs

How They Work

A fixed rate tariff means you will pay one rate for the complete length of your contract protecting your business from an increase if the prices go up. However, if the prices drop, you will not benefit from the lower rate and you will end up paying more. If you decide to leave the contract before the period of the fixed rate ends then you may to pay a penalty fee. Contract length can vary but can be in place for up to five years. Keeping an eye on the utility market will help you make a judgement on whether you think utility prices will be increasing over a certain period but bear in mind the fixed rate tariff can be a bit of a gamble.

Pros
  • It could save your organisation money in the long term
  • No need to worry about price increases
  • Their popularity means you will be able to choose from a variety of contracts and supplier
Cons
  • You could have higher initial upfront costs and pay more for peace of mind
  • If prices decrease you will be paying more than you need to
  • Exit the contract early and you may have to pay for the remainder of the contract and could incur a cancellation fee

 

Flexible Tariffs

How They Work

If you chose a flexible or variable rate tariff your energy price is not fixed so could increase or decrease in relation to fluctuations in the market. This means on a monthly basis you could be paying different prices so you would have to plan for the potential rises in costs. Having said that, the rate could fall so low it could work out cheaper than a fixed rate plan.

Pros
  • Your business may benefit from any decrease in price
  • Flexibility of moving your contract
  • If you decide to move you will find a wide choice of contracts and suppliers
Cons
  • You will have to pay if there is an increase in costs
  • Costs could vary month to month
  • Lack of stability on business expenses

The type of contract you use will be dependent on what you think is right for your business. If you need some guidance, you could take the advice of an energy and utility consultant. They usually offer impartial, no obligation advice on your energy usage and will help you make sense of all the options available to you. If you decide to use their service then the review of the latest rates and sourcing of suppliers would be their role rather than yours, leaving the headache of ensuring the best deal and price plan for your business to someone else. So what should you look for in a utility consultancy?

Melinda Fairfax from CUB commented ‘When sourcing an energy and utility consultant, organisations need to be confident of the service they will receive. Do your research, read their customer testimonials on their website and ask to speak to one of their existing customers so you can understand the level of service they receive. Is their service transparent? Do they use terminology you understand? Do they offer a no obligation consultancy? Have they experience within your sector? Think about what you want from an energy and utility consultant and make sure the company you choose offers everything you need’

CUB UK Ltd is an Energy Consultancy Company based in March, Cambridgeshire. Founded 20 years ago they provide a range of energy services to B2B clients including water audit services and advice on renewables and smart metering. The CUB team can be contacted on 01354 606848 or at www.c-u-b.com