UK SMEs write off a combined £5.8 million of debt – the equivalent of more than £21,000 every day

Britain’s SMEs wrote off more than £21,000 of debt every day in 2015-16, Direct Line for Business has found 

New analysis from Direct Line for Business estimates that Britain’s SMEs wrote off a combined £5.8 billion in the last financial year – equating to more than £21,000 every day.
When asked how much money their business had written off in unpaid debts in the previous financial year, around one in five (19%) SMEs said that they had written off debts at an estimated average loss of £31,330. However, almost one in 10 (9%t) of these SMEs claimed to have written off debts in excess of £100,000.
When asked why their business had decided to write off unpaid debts in the last financial year, the biggest reason, cited by 29% of respondents, was that the supplier had become insolvent and was, therefore, unable to pay the monies owed.
This was followed by 17% who said that they did not think that the supplier would have sufficient funds to cover the debt.
Most common reasons for writing off unpaid debts
The supplier/ customer was insolvent so couldn’t pay the monies owed
My business didn’t think the supplier would have sufficient funds to pay the debt owed
My business didn’t have time to ‘chase up’ the debt owed
My business didn’t have the funds to ‘chase’ the debtors through the courts
My business didn’t want to damage a future relationship with the supplier/ customer by demanding the debt owed
My business didn’t know how to go about reclaiming monies owed
Other reason
Source: Analysis by Direct Line for Business: All SMEs who have written off unpaid debt
Nick Breton, head of Direct Line for Business, said: “With more than a million SMEs based across the UK, these enterprises really do make up the backbone of the British economy.
“However, it is alarming to see just how much hard work goes unrewarded, especially when considering that many SMEs appear reluctant to chase debts, with reasons ranging from thinking that the client may not be able to afford the cost to damaging their relationship.
“All of these debts add up and with nearly 7,000 companies estimated to have entered liquidation in the first half of 2016 alone, the potentially disastrous knock-on effects of writing off monies owed are clear.”
The research also revealed that 82% of SMEs currently have balances outstanding from their debtors, with the average business being estimated to be owed £62,957.
A further 40% of SMEs who have written off unpaid debts in the last financial year, claim that they don’t even know how much money they are owed by their debtors, which highlights the need for greater cash management amongst smaller businesses.
Direct Line for Business’ research suggests that the reason so much money goes unclaimed could be due to a lack of awareness of the proper channels for reclaiming unpaid income. Nearly two thirds (65 per cent) of SME owners and decision makers said that they were unsure what the N1 Claim form was for (the document used to start a civil claim in the English court). Only one in eight (16 per cent) business operators knew exactly what the form was used for.
Breton added: “While maintaining a healthy relationship – and thus ensuring future income – is essential for businesses, many small businesses cannot survive without a regular cash inflow. SMEs should ensure that they are fully aware of all legal avenues designed to help them recoup all of their owed monies.
“In addition, they should ensure they have the correct insurance in place to account for any loss in earnings that may come about if and when a client or supplier is unable to fulfil their financial obligations.”
Direct Line for Business’s top tips for SMEs to protect themselves from having to write off bad debt:
  • Working only with businesses that you know and trust goes a long way to ensuring that debts are paid off. If you know of a company that has a reputation for not paying its debts you should carefully consider whether it is worth the risk in giving them your services.
  • Know your rights: There are many legal channels designed to help businesses that are owed money – even if their client is bankrupt. Make yourself familiar with the different options available and seek legal counsel if you’re not sure of the best approach.
  • Don’t be afraid to take control. No matter how good or bad your relationship with your client is, if you provide them with a service they should pay for it. This is how business works and you shouldn’t be afraid to ask for what you are entitled to.
  • Making sure that your business is sufficiently covered should the worst come to the worst is vital. Having a major debt written off could have catastrophic repercussions on a business, so it is therefore a wise move to ensure that your business insurance will cover you in the event that a client is unable to fulfil their financial obligations.
  • Direct Line for Business’ Legal Documents service provides policyholders with access to vital legal documents to aid debt recognition and recovery such as the N1 – Claim form for debt recovery, which once completed are checked by qualified, experienced solicitors.

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