Bibby Financial Services (BFS) has published research which it says shows the extent to which the UK’s small and medium sized enterprises (SMEs) are exposed to substantial debt stress at the current time.

The average bad debt amongst UK SMEs has increased by 61%, from £10,329 in Spring 2022, to £16,641 today. Currently, around 1.5 million – or 27% – of SMEs are struggling with this issue.

Combined with official statistics showing insolvencies in February jumped 17% when compared to the same time last year, data from BFS’s latest SME Confidence Tracker expose the fragility of Britain’s 5.5 million SMEs.

BFS found that 47% of businesses surveyed have seen at least one business customer cease to trade in the last six months alone, and 25% have seen three or more customers become insolvent.

Derek Ryan, UK managing director of Bibby Financial Services, said: “Rising insolvencies are causing huge ripple effects throughout supply chains across the country, leading to greater levels of bad debt for small and medium sized businesses. Combined with the rising cost of borrowing, this presents a significant and very real threat to the survival of many SMEs today. It’s more important than ever that businesses shore-up their credit control processes and look for ways to protect themselves against insolvency in their supply chains.”

60% of businesses say it’s taking longer for customers to pay their invoices in full compared to a year ago, and 29% – equivalent to around 1.6 million – are worried about how long it’s taking for invoices to be paid. Today, SMEs each have an average £68,413 owed to them in unpaid invoices, stifling growth at a time when the Government is trying to drive economic prosperity.

Today’s environment is also making it harder for businesses to access the finance they need to continue operating, let alone grow. 59% of businesses surveyed say it’s harder to secure a loan today than during the pandemic and 11% say they have struggled to secure finance for their business in the last six months. Meanwhile, 39% are worried they won’t be able to pay back loans if interest rates continue to rise.

Derek Ryan, UK managing director of Bibby Financial Services, added: “We may have narrowly avoided recession, but economic conditions remain incredibly volatile, especially for SMEs. Not only are SMEs grappling with the perennial issue of late payment and rising levels of bad debt, they are also struggling to access the finance they need to operate day-to-day.

“More than ever, SMEs need to be able to access the funding they need to operate from a variety of sources. We would encourage the Government to relaunch the Bank Referral Scheme to boost SME funding at this pivotal time in the UK’s economic recovery.”