Bad debt a “chronic problem” amongst small businesses, report finds

More than a quarter of small business (27 per cent) have written off money due to late payment in the past year, according to a new report which claims that bad debt is rife amongst SMEs.  

More than 1.4 million small businesses have suffered from bad debt over the past 12 months, according to Bibby Financial Services’ SME Confidence Tracker report for Q2.

It found that the amount written off by each business due to customers not paying invoices averaged at £11,829, SmallBusiness.co.uk reports.

Bad debt often forces businesses to cut staff, delay investment plans and can – in the most extreme cases – result in insolvency.

Rattled by Brexit

Bibby Financial Services global chief executive David Postings believes that Brexit had unnerved many small businesses.

“Following the UK’s vote to leave the EU, there is clearly some anxiety amongst SMEs and throughout the wider economy,” commented Mr Postings.

“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.”

Most at risk

Almost a third of transport firms (30 per cent) have been hit the hardest by bad debt, the report found, followed by the construction sector (29 per cent) which had written off almost £15,000 on average over the past year.

Payment times of SME customers have improved marginally in the second quarter of the year, dropping from 40 in the first three months of 2016 to 38 between April and June. That’s still some way off the record low of 31 days in Q1 2014.

Non-payment is often the result of customer insolvency, payment default or dispute, and the issue becomes greater within industries where materials and labour are paid up-front. That makes construction firms especially prone, due to how services are billed and the notoriously stretched payment terms.

SMEs were owed a total of £26.8 billion in overdue payments in 2015 with around £10.8 billion spent every year trying to recover late payments, according to direct debit company Bacs.

A Small Business Conciliation Service was announced last year to help businesses tackle the stubborn culture of late payments by investigating complaints and offering firms advice, support, mediation and conciliation services.

By Amy White