SMEs have written £5.4 billion off in debt

posted by 3 years ago in News

During the last financial year, SMEs of the UK wrote off a total mass of £5.8 billion in debt, this is the same as over £21,000 per day.

When SMEs were questioned on debt during the last financial year approximately one in five admitted that they wrote off debts at an estimated deficit of £31,330 whilst one in ten revealed that they had written off £100,000 in debt.

SMEs were also asked why they had written off so much unpaid debt and the majority (29%) said the reason they had written unpaid debt off was because their supplier had shut down which meant they were unable to pay their existing debts with them and 17% believed that their supplier would not be able to afford the debt due.

Head of Direct Line for Business, Nick Bretton 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 or writing off monies owed are clear.”

The study also found that 82% of SMEs in the UK have existing outstanding balances from their suppliers, which works out that the average business is owed £62,957, however it has come as more of a shock that 40% who have previously written off their debt believe that they aren’t actually sure how much their suppliers owe them – this shows the significance of managing and monitoring cash flow within a business.

Breton 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.”