One in four small to medium sized enterprises (SMEs) in the UK suffered from bad debt over the past 12 months, according to Bibby Financial Services’ (BFS) latest SME Confidence Tracker.

These firm said its survey results suggest that as many as 1.3m SMEs in the country could be affected by insolvency or the inability to pay one or more of their key customers.

The proportion of small and medium sized businesses who have suffered as a result of this problem has largely remained unchanged over time, remaining at around 25% since the Tracker began in Q1 2014. BFS said there was little evidence to suggest that this problem is getting better.

Businesses with over £1 million in revenues are particularly affected, with 35% saying they have experienced bad debt over the past 12 months.

David Postings, chief executive of Bibby Financial Services said: “Bad debt is a serious issue affecting a large number of businesses in the UK. The issue is particularly problematic for smaller firms who have often footed the bill for upfront costs even though they don’t have sufficient cashflow to survive.

“SMEs need to be aware of the implications of bad debt and how such losses can have an impact on their businesses.

“A bad debt can occur for a number of reasons including customer insolvency or protracted default. Often business owners don’t have the financial resources or access to advice to pursue legal action.”

The BFS SME Confidence Tracker exposed the detrimental effects bad debt can have on vital small businesses, with 27% facing lower profits than they expected and around 4% saying they almost went bust as a result of the inability to recover debt.

Postings added: “Unless businesses take action to reduce their exposure to the risks of bad debt or seek protection, they will continue to be plagued by this chronic threat to their survival. Business owners must take proactive steps to protect themselves against this ever-present risk to their business.

“Many business financiers offer bad debt protection and it’s an area SMEs should consider in order to protect their business and provide reassurance and security.”