The UK is witnessing a troubling surge in bad debt affecting small businesses, sparking significant strain in SME supply chains, reports reveal.
- According to Bibby Financial Services (BFS), the value of bad debt for small businesses has increased by 127%, with write-offs now averaging nearly £40,000 annually.
- These financial challenges have seen a rise in non-payment issues, with 40% of SMEs experiencing non-payment, up from 30% earlier this year.
- The introduction of the Government’s Fair Payment Code aims to mitigate these pressures but highlights discrepancies in payment practices among businesses.
- Industry leaders highlight that without immediate intervention, these financial strains could lead to widespread supply chain disruptions.
The financial landscape for small UK businesses is increasingly troubled as bad debts continue to mount. According to Bibby Financial Services’ latest report, the value of bad debt has surged by an astonishing 127%, forcing businesses to write-off substantial sums, which now average nearly £40,000 each year. This is a stark increase from the £17,500 average recorded in the previous spring, reflecting the growing financial turmoil.
Adding to the concern is the significant rise in non-payment issues. Currently, 40% of small and medium enterprises (SMEs) are facing challenges with non-payment, a noticeable increase from the 30% reported earlier in the year. These figures are indicative of the mounting pressures within the supply chain, as businesses struggle to reconcile outstanding invoices.
Ahead of the Government’s introduction of the Fair Payment Code, which is designed to address such monetary concerns, the disparity in payment times between businesses becomes more apparent. Many businesses fall into late payment practices, not through intention, but through necessity, often to maintain their cash flow and ensure critical financial obligations are met. This highlights a systemic issue within the industry that needs addressing to prevent further economic disruption.
Jonathan Andrew, the CEO of Bibby Financial Services, has termed the situation a “supply chain disaster waiting to happen”. He emphasises that bad debt acts as a “hidden assassin”, capable of causing extensive damage to SME supply chains if not properly managed. He suggests that injecting working capital more swiftly into supply chains is paramount to insulating smaller businesses from these financial shocks.
Moreover, data from the Federation of Small Businesses supports these observations, noting that late payments result in the closure of approximately 50,000 businesses annually. Despite a slight 9% drop in corporate insolvencies between July and August 2024, these remain troublingly higher than pre-pandemic levels. The data reveals that more than half of SMEs have witnessed at least one supplier (58%) or customer (56%) going insolvent recently, further illustrating the precariousness of the current business environment.
Without effective intervention, the rising bad debt crisis may have severe implications for small business supply chains.
