SMEs owed £68k on average by suppliers

Bad debt and insolvencies on the rise, putting SME futures at risk as almost half of companies have seen business customers cease trading in the last six months

The average bad debt among SMEs has jumped 61% from £10,329 in spring 2022, to £16,641. Currently, around 1.5 million (27%) of SMEs are struggling with this issue, shows research by Bibby Financial Services.

Combined with official statistics showing insolvencies in February jumped 17% when compared to the same time last year, data from Bibby’s latest SME Confidence Tracker exposed the fragility of the UK’s 5.5m SMEs.

Almost half (47%) of businesses surveyed had seen at least one business customer cease to trade in the last six months alone, and a quarter (25%) have seen three or more customers become insolvent.

Derek Ryan, UK managing director of Bibby Financial Services said: ‘Rising insolvencies are causing huge ripple effects throughout supply chains across the country, leading to greater levels of bad debt for small and medium sized businesses.

‘Combined with the rising cost of borrowing, this presents a significant and very real threat to the survival of many SMEs. It’s more important than ever that businesses shore-up their credit control processes and look for ways to protect themselves against insolvency in their supply chains.’

Six in 10 businesses (60%) said it was taking longer for customers to pay their invoices in full compared to a year ago, and nearly a third (29%) - equivalent to around 1.6m SMEs - are worried about how long it is taking for invoices to be paid.

The latest figures showed that SMEs each have an average £68,413 owed to them in unpaid invoices.

It is also harder for businesses to access the finance they need to continue operating. Three in five (59%) businesses surveyed said it was harder to secure a loan than during the pandemic and one in 10 (11%) said they have struggled to secure finance for their business in the last six months. Meanwhile, nearly four in 10 (39%) are worried they will not be able to pay back loans if interest rates continue to rise.

Ryan added: ‘We may have narrowly avoided recession, but economic conditions remain incredibly volatile, especially for SMEs. Not only are SMEs grappling with the perennial issue of late payment and rising levels of bad debt, they are also struggling to access the finance they need to operate day-to-day.

‘More than ever, SMEs need to be able to access the funding they need to operate from a variety of sources. We would encourage the government to relaunch the Bank Referral Scheme to boost SME funding at this pivotal time in the UK’s economic recovery.’

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