THREE in four small- and medium-sized enterprises (SMEs) are forced to write off unpaid debts, with the average SME losing £11,700 a year as a result.
This equates to £50bn per year across the whole industry, or £134m each day. Medium-sized firms are particularly vulnerable to bad debts, writing off an average of £33,750 in unpaid invoices each year.
According to a new study by specialist lender Amicus Commercial Finance – which is partnered with P2P platform Crowdstacker – the proliferation of bad debts is threatening SME growth by robbing companies of their working capital and creating cashflow problems.
“Our research shows that not only is there a reliance by many UK SMEs on clients’ invoices being paid within the debtor day period, but that despite this, significant amounts of debt are being written off due to non-payment,” said John Wilde, managing director of Amicus Commercial Finance. “Given this, it’s understandable that business owners are increasingly turning to invoice finance as a way of converting unpaid debts into instant working capital.”
Of the 500 firms who were surveyed, just eight per cent currently use invoice financing, but an additional 19 per cent said that they plan to use it in the future, with 11 per cent intending to use it within the next 12 months.
Almost one-in-five (18 per cent) SMEs said they had lost contracts due to cashflow problems, resulting in a range of problems including the inability to pay suppliers (cited by 41 per cent of business owners), making their own debt repayments (30 per cent) and buying inventory (29 per cent). A quarter (24 per cent) of those surveyed admitted that cashflow shortages had left them unable to pay staff.