Pandemic causes UK SMEs to write off an average of over £21,000

09/09/2020

New research has shown the extent of the impact Covid-19 has had on small businesses, with poor cash flow having a knock-on effect along supply chains.

A survey of over 500 SMEs by research company Critical Research found that 50% of the UK’s small companies are being paid late, and six months into the Covid-19 pandemic were experiencing losses of tens of thousands of pounds.

The research, which was carried out on behalf of Bibby Financial Services, builds on a previous Bibby report that showed a third of respondents were experiencing late payments in April this year.

The latest survey also reveals that a third of respondents were being paid more than a month late, and 28% had suffered from bad debt, caused by a customer failing to pay part or all of their invoice.

An average of £21,590 has been written off by SMEs since the start of the lockdown, and 12% of firms went on to admit that they themselves were withholding payment to their own suppliers.

This demonstrates how the impact of poor cash flow in one company can move down the supply chain as companies move into a state of self-preservation and fail to make much-needed payments, with one in five businesses using debt to maintain their cash flow levels.

For struggling suppliers, there can also be an impact on their customers, with a fifth of companies experiencing supply chain issues due to the temporary or permanent closure of their suppliers.

Findings also showed that 14% of respondents lacked the working capital to buy raw materials and fulfil new orders, and roughly the same amount (13%) had turned down new orders that they could not fulfil.

Almost a third of businesses (32%) also said that ongoing social distancing measures were continuing to reduce their capacity to take on new business.

On a slightly more positive note, 37% of businesses reported that they had not experienced any challenges due to the pandemic, but Ana Boata, head of macroeconomic research at Euler Hermes, highlighted the dangers still ahead by calling the current climate an ”insolvency timebomb”.

In the report, Boata says: “Even as economies emerge from lockdowns, we expect the bulk of insolvencies is still to come, largely between the end of 2020 and H1 2021.”

If you’re experiencing cash flow difficulties or you’re worried about the long terms impacts of late payment on your business, our award-winning debt collection agency could offer a way of getting your invoices paid faster.

To speak to one of our consultants about your challenges and requirements, call 0800 9774848 or request a call back at a time that suits you.