More than a quarter of SMEs write off late payment debt

More than a quarter of small and medium-sized enterprises in the UK have suffered from bad debt to the extent that they have been forced to write off some payments altogether over the past 12 months.

According to the SME Confidence Tracker report for Q2 by Bibby Financial Services, 27% of SMEs have written off payments over the past year.

The average amount scrapped due to unpaid invoices stands at £11,829. If applied to the whole business community, this would equate to more than 1.4 million businesses scrapping payments worth more than £1.65 billion.

The worst hit industries were the transport and construction sectors. 30% of SMEs operating within the transport sector and 29% of those within construction had written off late payments, with the sums scrapped averaging around £15,000 per affected business per year.

The report says that the problem can be particularly pronounced in industries where raw materials and labour costs have been paid up front. Businesses operating within construction often face unique problems due to lengthy payment terms and the nature of the billing cycle.

Late payments can become non-payment due to a number of reasons, including customer insolvency, late payments further along the supply chain, and payment disputes. This can cause wider issues for firms that operate on tight budgets or that have extensive property or other business costs to cover. In these instances it is best to contact a restructuring professional early to assess refinancing options or restructuring options.

Despite the amount of bad debt being written off, the Tracker for Q2 found that the average time SMEs had to wait for their invoices to be paid had actually fallen from the first quarter of 2016.

Payment times had fallen from 40 days in Q1 2016 to 38 days in Q2. This is still considerably higher than the tracker low of 31 days recorded in Q1 2014.

A study by Lloyds Bank published at the start of the year showed that SMEs in the UK were owed more than £500 billion in overdue invoices.

Businesses in Sussex, Surrey, Hampshire and Dorset were owed the most in late payments, with an average of £109,000 in outstanding invoices. Those in Scotland were owed the least, at an average of £79,000.

By Phil Smith

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