The latest report by SME funder, Bibby Financial Services (BFS), has revealed a concerning surge in the value of bad debt suffered by small businesses in London. The report shows that the value of bad debt has increased by a staggering 127 percent, with businesses writing off an average of nearly £40,000 in unpaid invoices in the last 12 months, up from £17,500 in the spring.
This increase in bad debt has also been accompanied by a rise in the proportion of businesses experiencing non-payment, which now stands at 40 percent, up from 30 percent in March. This trend highlights the considerable supply chain pressure caused by late or non-payment by customers.
Jonathan Andrew, the Chief Executive Officer of Bibby Financial Services, has warned that this situation could lead to a supply chain disaster for SMEs, as well as significant economic losses. Late payment is already a well-known challenge for small businesses, but the issue of bad debt, where invoices are left unpaid and written off entirely, poses an even greater threat to SME supply chains.
Data from the Federation of Small Businesses reveals that late payment leads to the closure of 50,000 businesses each year. Despite a slight decrease in corporate insolvencies between July and August 2024, the number remains higher than pre-pandemic levels. BFS’s data also shows that over half of SMEs have experienced the insolvency of at least one supplier (58%) or customer (56%) in recent months.
Andrew emphasizes the importance of injecting working capital into supply chains sooner to protect smaller businesses and reduce payment times. He also calls for government measures to address the distinction between late payment and the more severe issue of bad debt resulting from non-payment or protracted default, which can have devastating consequences for both the creditor and businesses in their supply chains.
In light of these findings, it is crucial for businesses to proactively manage their cash flow, monitor customer creditworthiness, and establish clear payment terms to mitigate the risk of bad debt. Seeking assistance from financial advisors or alternative funding sources may also help SMEs navigate the challenges posed by late or non-payment in today’s economic climate. By taking proactive measures and staying informed about potential risks, businesses can better protect themselves from the impact of bad debt and ensure their long-term sustainability.
