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The Actuary The magazine of the Institute & Faculty of Actuaries

Almost £50bn of debts written off by UK SMEs

The average amount of debt written off by small and medium-sized businesses (SMEs) last year was £11,708, according to research by Amicus Commercial Finance.

Debt being written off due to non-payment ©iStock
Debt being written off due to non-payment ©iStock

They found that 76% of SMEs wrote off debt during this time, totalling just under £50bn collectively, or £134m every day.

One-in-five SMEs are experiencing cash-flow problems according to the research, with 8% currently using invoice finance, 19% planning to do so in the future, including 11% in the next 12 months.

Amicus Commercial Finance managing director, John Wilde, said: “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.

“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.”

The research involved the study of 500 businesses, with medium-sized firms employing between 50 and 249 people the worst affected by delayed payments, losing an average of £33,750 a year through unpaid debts.

It was found that the biggest challenges caused by cash-flow shortages included paying suppliers, cited by 41% of business owners, meeting debt repayments (30%), buying inventory (29%) and paying staff (24%).

These shortages have been reflected in many SME’s ability to buy insurance according to the majority of brokers.

Research by RSA shows that 88% of insurance brokers see underinsurance as a problem for their SME clients, suggesting that many do not have sufficient coverage in the event of experiencing unexpected issues.

RSA schemes and deals director, Russell White, said: “Our research shows a significant disparity between the issues perceived by UK businesses to be a risk and the extent to which they are protecting themselves against them.”

“The fact that only 14% of SMEs plan to increase their cover in the next 12 months suggests the scale of underinsurance amongst UK businesses is likely to worsen in the coming years unless significant action is taken.”