Ofwat has launched a review of the market codes that set out credit requirements for retailers in the business retail market.
Currently, retailers can choose to prepay wholesalers for the water their customers use or postpay, which includes providing a form of credit.
This must cover the cost of supplying their customers for 50 days but if they don’t have the means to do it, wholesalers can choose to no longer work with the retailer.
The water regulator said some have argued this could discourage smaller, new entrants from competing in the market.
It therefore wants to review the requirements to find out if there are better ways to protect customers and ensure the market is dynamic and competitive for retailers.
Emma Kelso, Ofwat Senior Director of Customers and Casework said: “The purpose of this review is to help us understand how the current arrangements relating to credit requirements for the business retail market are working and to examine the options available to remedy any issues which arise.
“In particular, we are keen to understand whether the current arrangements are effectively facilitating new entrants wishing to enter the market.”
The initial findings and next steps will be published by April.