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Over a million UK SMEs hit by bad debt – yours included?

Unpaid debts affect close to two million small and medium-sized businesses (SMEs) in the UK.

Bibby Financial Services (BFS) releases a quarterly SME Confidence Tracker. They survey over 1,000 UK SMEs on sales, debt, credit, and investments.

In 2016 Q2’s report, nearly a quarter of SMEs were victims of bad debt over the previous 12 months. When Q3 results came out in October, the number of SMEs hit by bad debts rose to one in three.

Almost a third of respondents also admitted to writing off outstanding debts in the last year – 27% in Q2 and 30% in Q3. The average amount written off rose from £11,829 to £12,656 over those three months.

Around 39% feel late payments from customers represent one of their biggest business threats. Just under half of SMEs wait on their invoices for over 30 days. The average wait for invoice payment is now 38 days, unchanged from Q2. That figure’s been steadily increasing ever since the 2007-8 recession.

Different areas of the UK report varying waits for invoices to be settled. In London, it’s just over the standard 30-day period: 32 days on average. SMEs in Wales, however, are left hanging on for 47 days. With that representing the median figure, we can assume that plenty of businesses wait even longer.

Half of the surveyed SMEs stated that their sales had remained static from Q2 to Q3 – and 20% claimed sales had dropped. Roughly 10% believe they will continue to see a decline through Q4.

Outstanding invoices and stagnant sales quickly impact on business cashflow. In Q3, 39% claimed that managing their cashflow was a particular headache.

SMEs which trade internationally are feeling the pinch. The value of the pound has plummeted in the wake of Brexit, and the UK no longer holds a top credit rating. Close to half of respondents feel that the pound’s weak position will test their business in 2017. That’s where our international debt collection can help exporters recover overdue invoices quickly – in the past 12 months, we’ve recovered money from companies in 146 different countries.

Considering the BFS report for Q1 predicted “a return to confidence” for SMEs this year, the findings are less than encouraging. Q3’s Confidence Index is at the second-lowest recorded level since 2014.

It’s important to consider the other side of the coin. Individuals are now more susceptible to large amounts of personal debt – or even insolvency.  With austerity cuts in effect, consumers are more readily relying on credit and grace periods.

Where payment is needed immediately, potential customers may be reluctant to open their wallets at all. BFS found that 14% of Q3 respondents see ‘lack of domestic demand’ as a key challenge.

This situation is, of course, not directly helpful to businesses. However, recognising that your customers may also be struggling with debt could prove beneficial in the long term. Handle debt management fairly and sensitively, and consumers are likely to exhibit more brand loyalty in future.

There are many reasons why debts go bad. When customers can’t, don’t – or won’t – pay, sometimes debt collection experts are needed. In cases like these, our consumer debt collection service is an effective, fair and straightforward solution.

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