Small businesses face increasing challenges with bad debt threatening supply chains, as revealed by recent data.
- The value of bad debt for SMEs has surged by 127%, indicating heightened financial strain.
- Unpaid invoices average nearly £40,000 per business, a significant increase from earlier this year.
- The proportion of businesses facing non-payment has also risen, impacting 40% of SMEs.
- Government measures like the Fair Payment Code are being introduced to address these ongoing issues.
Small businesses are encountering substantial difficulties due to a sharp rise in bad debt, with recent figures showing a 127% increase in its value. This significant leap points towards mounting pressures within supply chains, as noted in Bibby Financial Services’ latest SME Confidence Tracker.
Further analysis reveals that on average, small businesses have written off nearly £40,000 in unpaid invoices over the past year. This is a stark rise from an average of £17,500 reported in earlier months, highlighting the escalating financial burdens on SMEs.
The challenge is compounded by the rising number of businesses experiencing non-payment, which has grown from 30% to 40% since March. Ahead of the Government’s Fair Payment Code introduction, these figures underscore the severe strain caused by late or non-payment of invoices.
Jonathan Andrew, the CEO of Bibby Financial Services, has described the situation as a looming disaster for SME supply chains, equating bad debt to a hidden threat that disrupts economic stability. Late payment is already recognised as a challenge, but the complete write-off of unpaid invoices presents a particularly insidious problem.
Data from the Federation of Small Businesses complements these findings, indicating that late payments contribute to around 50,000 business closures annually. Despite a slight decline in corporate insolvencies during the summer, these remain above pre-pandemic levels. Bibby Financial Services reports that more than half of SMEs have witnessed the insolvency of at least one supplier or customer recently.
Jonathan Andrew further commented on the complexity of the issue, emphasising that while initiatives like the Fair Payment Code are welcomed, they must recognise that not just large companies pay late. Many small businesses delay payments to maintain their own cash flow. Injecting working capital into the supply chain and shortening payment cycles are crucial steps to safeguarding SMEs.
The Government is urged to make a clear distinction between late payments and the less understood issue of bad debt due to prolonged non-payment or default. This distinction is vital as the repercussions extend beyond just creditors, affecting entire business networks.
In conclusion, the rising tide of bad debt poses a significant threat to small businesses, demanding immediate and effective solutions.
