Small businesses forced to write off debt due to late payment

More than a quarter of small and medium sized enterprises (SMEs) in the UK suffer from bad debt to the extent that they have had to write off money in the past year.

Findings from the SME Confidence Tracker report for Q2, undertaken by Bibby Financial Services before the EU referendum, show that 27 per cent of SMEs have written off money due to late payment in the past year.

Across the business population, findings equate to more than 1.4 million SMEs suffering from bad debt over the past 12 months, with the average amount scrapped by each business due to customers not paying invoices standing at £11,829.

BFS global chief executive David Postings says, ‘Bad debt is a chronic problem for SMEs and can lead to staff cuts, delayed investment plans and, at worst, insolvency.

‘Following the UK’s vote to leave the EU there is clearly some anxiety amongst SMEs and throughout the wider economy. But now is the time for businesses to take growth and stability into their own hands and this must start by taking a more planned approach to chasing payment and protecting themselves against the effects of bad debt.’

SMEs in the transport (30 per cent) and construction (29 per cent) sectors have been worst hit with construction businesses writing off almost £15,000 on average over the past year.

Postings says that non-payment can occur due to customer insolvency, payment default or dispute and the issue is particularly problematic in industries where raw materials and labour costs have been paid up front, with the construction sector particularly prone to the effects due to the nature of billing and notoriously lengthy payment terms.

The Q2 report shows that average invoice payment times of SME customers have reduced to 38 days, down from 40 days in Q1. However, this remains a week longer than the Tracker low of 31 days in Q1 2014.

A Small Business Conciliation Service was announced as part of the Enterprise Act 2016 to help businesses settle payment disputes and to reduce the impact of late payment.

Postings adds, ‘SMEs across the country must take steps to prevent late payment and non-customer payment from affecting them, particularly at a time of uncertainty when suppliers may look to squeeze payment terms for their own benefit.’

Further reading on late payment

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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