Over a quarter of small and medium sized enterprises (SMEs) in the UK, suffer from bad debt, when customers fail to pay, according to a study by business funder, Bibby Financial Services (BFS).

Findings from BFS’ SME Confidence Tracker report for Q2, undertaken before the EU referendum, show that 27% of SMEs have written-off money in the past year.

Across the business population, findings equate to more than 1.4m SMEs suffering from bad debt over the past 12 months. The average amount scrapped by each business due to customers not paying invoices was £11,829.

David Postings, BFS global chief executive, said: “Bad debt is a chronic problem for SMEs and can lead to staff cuts, delayed investment plans and – at worst – insolvency.

“Following the UK’s vote to leave the EU there is clearly some anxiety amongst SMEs and throughout the wider economy. But now is the time for businesses to take growth and stability into their own hands and this must start by taking a more planned approach to chasing payment and protecting themselves against the effects of bad debt.”

SMEs in the transport (30%) and construction (29%) sectors were worst hit with construction businesses writing off almost £15,000 on average over the past year.

Postings said: “Non-payment can occur due to customer insolvency, payment default or dispute and the issue is particularly problematic in industries where raw materials and labour costs have been paid up front. The construction sector is particularly prone to the effects due to the nature of billing and notoriously lengthy payment terms.”

The Q2 report shows that average invoice payment times of SME customers have reduced to 38 days, down from 40 days in Q1. However, this remains a week longer than the Tracker low of 31 days in Q1 2014.

A Small Business Conciliation Service was announced as part of the Enterprise Act 2016 to help businesses settle payment disputes and to reduce the impact of late payment. It is unclear how the Government’s plans to revamp the Department for Business Innovation and Skills as the Department for Business, Energy and Industrial Strategy, will affect previously announced measures.

Postings added: “SMEs across the country must take steps to prevent late payment and non-customer payment from affecting them, particularly at a time of uncertainty when suppliers may look to squeeze payment terms for their own benefit.

“Now is an ideal time for the new Secretary of State for Business, Energy and Industrial Strategy to set-out the Government’s support plans on critical issues for SMEs, such as late and disputed payments.”