SMEs wrote off £5.8 billion in debt in last financial year

When asked how much money their business had written off in unpaid debts in the previous financial year, around one in five SMEs said that they had written off debts at an estimated average loss of £31,330. However, almost one in ten 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 per cent of respondents, was that the supplier had become insolvent and was, therefore, unable to pay the monies owed. This was followed by 17 per cent who said that they did not think that the supplier would have sufficient funds to cover the 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,2 the potentially disastrous knock-on effects of writing off monies owed are clear.”

The research also revealed that 82 per cent of SMEs currently have balances outstanding from their debtors, with the average business being estimated to be owed £62,957. More alarmingly, a further 40 per cent 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 of SME owners and decision makers said that they were unsure what the N1 Claim form was for ). Only one in eight business operators knew exactly what the form was used for.

Nick Breton, Head of Direct Line for Business continued: “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.”