Fuel cards with a refundable deposit
The second possibility for companies which need fuel cards but have a bad credit rating or no credit record is to make a refundable deposit.
This is an arrangement that you may be offered by a fuel card provider’s credit department. Its greatest advantage is that it gives you the chance to work your way back to improving your company’s standing with your fuel card provider.
How does a deposit account work?
When you apply for fuel cards for your business, you are asked how much fuel your company buys each week. The card provider will work out your weekly fuel spend from this. They will also carry out a full credit rating assessment.
If you have a good enough credit rating, you may be offered weekly invoicing with 7 days to pay. This means your drivers get fuel on credit for a week, then the invoice comes and you have another week to pay it. You pay for your fuel on this weekly rolling credit system.
If you have a bad credit rating, you may be asked to make a refundable deposit. This could be anything from 20% to 100% of your usual fuel spend, depending on how risky the fuel card provider thinks you are. They will look carefully at your credit rating and various other factors. With this deposit in place, the fuel card provider will let you buy your fuel on credit, so your drivers use their fuel cards as normal.
An example of a refundable deposit for fuel cards
Suppose your weekly fuel spend is £400 and the fuel card provider offers you
- a weekly invoicing facility
- and 7-day payment terms
- with a 50% deposit.
This means they will ask for a refundable deposit that equals 50% of what you spend in your fuel account. In this example, that deposit would equal £400 (two week’s credit at 50%).
If you didn’t pay the bill the following week, the fuel card provider would stop the account and ask for full payment.
- If full payment was not made, then ultimately the deposit would be used to pay the fuel debt.
- If the full payment was made, then the account would be released and your deposit would remain in place for the next invoicing period.
Be warned, scenario 2 would be considered “poor payment behaviour”. In this case, you might have to give a higher deposit to be allowed to keep using your account.
When does your deposit get refunded?
When you make a deposit, the fuel card provider will tell you the conditions you need to fulfil before they will refund all or part of the deposit. This assumes no changes in your overall circumstances at the time your account is reviewed.
Typically, they would want a period of “clean trade history”. This means no non-payments (i.e. direct debit being returned unpaid on due date). They would also want to see an improvement in your business’s credit rating.
How could you improve your credit rating?
Trade history can be built up over a period of 3, 6 or 12 months. It is one of the things that influence your credit rating. To improve your whole credit rating often takes years of profitable and improving trading accounts to be published.
For many businesses it means that they can keep their drivers on the road conveniently and, over time, build up to a normal trading account with a credit line.