Weaker economy drives surge in SMEs seeking protection against customer insolvency and payment

• Average of £30,000 written off as bad debt in the last year
• One in five firms holding back payments to shore up cashflow
• Payment pressures lead to uptick in SMEs covering customer insolvency and default

Increasing numbers of businesses are seeking protection against bad debt as they navigate tough trading conditions, according to SME funder, Bibby Financial Services (BFS). 

BFS’s latest SME Confidence Tracker reveals that the average amount SMEs are owed in unpaid invoices is £66,770 – a 10 percent increase year-on-year – and 30 percent have written off an average of almost £30,000 due to customer insolvency or payment default.

In response to these risks, demand for protection is rising. Sixty percent of all BFS’ new business prospects in 2025 opted to include Bad Debt Protection (BDP) as part of their overall funding package. 

Crucially, SMEs are increasingly choosing to protect their entire sales ledger rather than selectively covering a few customers only. This suggests payment risk is spread more widely across supply chains, rather than limited to a few struggling firms. 

Derek Ryan, CEO for North West Europe at Bibby Financial Services, said: “Economic pressures are driving caution among many businesses who are urgently seeking ways to protect against insolvency and protracted default of customers, so we have seen a significant increase in funding applications that include bad debt protection. For many, it’s no longer about simply protecting against one or two problematic debtors, and we are seeing more SMEs covering their entire sales ledger, which indicates the extent of supply chain pressures today.”

Figures reflect the growing financial pressures facing SMEs across the UK, with some being forced to fold. UK Government statistics for February 2026 show corporate insolvencies for the month hitting 1,878 – a 7% rise from January 2026. However, bad debt is no longer confined to businesses on the brink of insolvency. 

BFS’s research shows that payment delays have lengthened considerably with 62 percent of SMEs saying their customers are taking longer to pay in full compared with a year ago. Further, almost one in five businesses (19%) say they have delayed paying creditors to preserve their own cashflow. 

Derek Ryan, added: “This is a clear reflection of the uncertainty many firms are currently facing because of lingering high costs and trading volatility. However, unlike late payment, which is a widely accepted issue, bad debt is the hidden cost-of-doing-business. It’s a widespread problem which has significant knock-on effects on costs across supply chains, as those writing-off sums owed increase margins to cover their own losses.”

“There’s also a strong indication that, in certain cases, organisations are adopting deliberate payment delay tactics to protect their own financial positions. This is a worrying development that should ring alarm bells for businesses of all sizes, as well as for policymakers seeking to safeguard the resilience of supply chains across the UK economy.”

Theo Noyek, Director at Theo’s Timber commented: “We’re seeing the impact of the conflict in the Middle East play out very clearly on global supply chains. Much of our materials supply comes from China and the Far East through the Strait of Hormuz. But shipping diversions there have pushed up typical delivery times from 12 to 16 weeks, and every delay racks up costs and prices. This is having a significant knock-on impact for our customers, including driving up insolvencies which seem stubbornly high and reminiscent of 2008.”

“Thankfully for us, we incorporated bad debt protection from BFS into our financial planning strategy from day one, so we’re better able to manage the current situation and protect our margins and cashflow. It also provides us with an added layer of confidence when we take on new customers.”