Small businesses writing off mountains of debt

New analysis estimates that Britain’s SMEs wrote off a combined £5.8 billion in the last financial year.

When asked how much money their business had written off in unpaid debt in the previous financial year, around one in five (19 per cent) businesses say they had written off debts at an estimated average loss of £31,330. However, almost one in ten (nine per cent) of these SMEs claimed to have written off debts in excess of £100,000.

When asked why their business had decided to write off unpaid debts in the last financial year, the biggest reason, cited by 29 per cent of respondents, was that the supplier had become insolvent and was, therefore, unable to pay the monies owed. This was followed by 17 per cent who said that they did not think that the supplier would have sufficient funds to cover the debt.

Nick Breton, head of Direct Line for Business, which commissioned the research, says it is alarming to see just how much hard work goes unrewarded, especially when considering that many SMEs appear reluctant to chase debts, with reasons ranging from thinking that the client may not be able to afford the cost to damaging their relationship.

‘All of these debts add up and with nearly 7,000 companies estimated to have entered liquidation in the first half of 2016 alone, the potentially disastrous knock-on effects of writing off monies owed are clear.’

The research also reveals that 82 per cent of SMEs currently have balances outstanding from their debtors, with the average business being estimated to be owed £62,957.

Companies don’t know how much they are owed

A further 40 per cent of SMEs that have written off unpaid debts in the last financial year claim that they don’t even know how much money they are owed by their debtors, which highlights the need for greater cash management amongst smaller businesses.

The research suggests that the reason so much money goes unclaimed could be due to a lack of awareness of the proper channels for reclaiming unpaid income. Nearly two thirds (65 per cent) of SME owners and decision-makers say that they were unsure what the N1 Claim form was for (the document used to start a civil claim in the English court). Only one in eight (16 per cent) business operators know exactly what the form is used for.

Breton continues, ‘While maintaining a healthy relationship, and thus ensuring future income, is essential for businesses, many small businesses cannot survive without a regular cash inflow. SMEs should ensure that they are fully aware of all legal avenues designed to help them recoup all of their owed monies.’

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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