In a concerning trend for the UK’s small and medium enterprises (SMEs), Bibby Financial Services (BFS) reports a staggering 127% rise in bad debt, straining supply chains across the sector. According to the latest findings from the BFS SME Confidence Tracker, small businesses have been forced to write off nearly £40,000 in unpaid invoices on average over the past year—more than double the figure recorded earlier this spring.
This bad debt surge is amplifying financial pressure on SMEs, with more than half (58%) of small businesses losing at least one key supplier to insolvency. The widespread closures in supply chains risk triggering a knock-on effect of bankruptcies and economic destabilisation among smaller firms reliant on regular payments to sustain operations. As the Government gears up to launch the Fair Payment Code aimed at mitigating late payments, experts fear the current situation reveals an even more dire problem: unresolved bad debt.
Jonathan Andrew, Chief Executive Officer of Bibby Financial Services, emphasised the urgent need for action: “The challenge of late payments is longstanding, but the real, unseen threat here is bad debt—where unpaid invoices are written off entirely. This silent disruptor can have devastating consequences, disrupting entire supply chains and resulting in economic leakage that’s difficult to reverse.”
With around 40% of SMEs currently affected by non-payment, a substantial increase from 30% in March, small businesses find themselves in an increasingly precarious position. Many SMEs have been forced to extend payment terms to their own customers or hold back on vital expenses, exacerbating the cash flow problems up and down their supply chains.
Compounding the crisis, insolvencies across the corporate landscape remain higher than pre-pandemic levels, as noted by the Federation of Small Businesses, which estimates that late payment alone leads to 50,000 business closures annually. BFS’s data corroborates this, revealing that 56% of SMEs have recently experienced a customer insolvency, underlining the interlinked risks posed by payment defaults within SME networks.
Andrew continued, “While the Government’s Fair Payment Code is a step in the right direction, it’s critical to address both late payments and bad debt directly. Many SMEs delay payments to manage their own cash flow pressures, which creates a vicious cycle of financial strain. What’s needed is a way to inject working capital earlier in the supply chain to stabilise smaller firms before they are overwhelmed by non-payment losses.”
Bibby Financial Services is calling for urgent government intervention to implement measures specifically targeting bad debt. Without such action, they warn, there could be a wave of SME failures, with ripple effects set to destabilise supply chains nationwide.
