Bad debts on the rise – Time to crack down

As we approach the end of the year, one trend has become increasingly concerning for UK businesses – debts are on the rise.

According to a recent report, small to medium-sized enterprises (SMEs) have seen the value of bad debt surge by 127 per cent over the past six months.

This figure is alarmingly high, raising important questions about what is driving this increase and how you can take proactive steps to mitigate its impact.

Bad debts refer to money owed to a business that is deemed unable to be collected, often resulting from customers’ inability or unwillingness to pay, which can negatively impact cash flow and profitability.

While many businesses and individuals have seemingly moved on from the pandemic, the economy is still suffering from its lasting effects.

Some SMEs are still struggling to recover, facing cash flow issues and fluctuating demand, all of which have been exacerbated by political instability and uncertainties surrounding the recent Budget.

Additionally, with the cost of living still so high, many individuals and companies are prioritising their essential expenses, leaving bills and invoices further down the list.

This situation poses significant challenges for SMEs, which typically do not have the same financial buffers as larger corporations.

Navigating bad debts – what can you do?

If your business is facing bad debts and you are neglecting them, you are exposing yourself to cashflow issues, a poor credit rating and possible bankruptcy or liquidation.

To avoid such outcomes, you might want to consider one or more of the following solutions:

• Strengthening your credit policies – Regularly review credit policies to align with current market conditions. Conduct thorough credit checks on new clients and periodically reassess credit limits for existing ones.
• Setting clear payment expectations – Establish upfront payment terms to ensure clarity around due dates and any late fees. This proactive approach helps reduce misunderstandings and payment delays.
• Optimising invoicing processes – Adopt digital invoicing tools for efficient billing, ensuring prompt invoicing and automated reminders to improve timely payments.
• Fostering client relationships – Strong client relationships help manage payment issues. If a client faces financial difficulty, open discussions about payment plans can lead to better outcomes than escalation.

For businesses facing bad debt challenges, we strongly suggest you discuss the issue with an experienced accountant.

We can work with you and your wider team to implement strategies to improve your cash flow, by taking a proactive approach to the collection of monies owed to you.

For expert assistance and customised solutions to help you handle bad debts, or to talk to us about how you can improve the management of your cash flow more generally, contact our accounting team today.