UK small and medium-sized enterprises (SMEs) waiting for outstanding payments could lose as much as £2.2bn ($2.9bn), as their customers fall into administration.
Businesses are counting the cost of COVID-19, as more than a third (38%) of SMEs are waiting to be paid an average of £59,013, for work they completed before the lockdown, according to new research from risk-tech business Nimbla.
The survey of 2,000 businesses found that a fifth (21%) of these companies believe they will never recover the full amount, losing on average £24,903 because those customers have gone into administration.
The amount owed is set to increase dramatically over 2021, the study found.
Businesses reported that, on average, six invoices go unpaid every year, with half of these, worth £41,193, written off due to insolvency.
Despite this high rate of loss, only 4% of business owners take out credit or invoice insurance which would protect against this.
Many SME owners are rethinking how they do business with respect to payments. While 83% said they could continue trading despite the loss of cash, they also said they would ask customers for deposits, request shorter payment terms and decline larger projects.
Business owners have spent, on average, two weeks chasing invoice payments that eventually went unfulfilled because the customer became insolvent.
Flemming Bengtsen, CEO at Nimbla, said: “The impact the lockdown has had on SMEs, who are the heart and soul of the UK economy, is astonishing. Many have survived several attacks during the pandemic and, now, knowing they won’t get paid for the work they did is another huge body blow.
“There could be more bad news on the horizon for smaller businesses as high street chains face difficulties and potential insolvencies.”
Three in five (60%) of the SMEs surveyed are worried they won’t be paid because of insolvencies, as customers seek longer payment terms. SMEs expect that one in six of their customers will become insolvent before the end of the year.
All told, if businesses are paid in full, they expect to make on average £263,000 revenue to the end of 2020.
Bengtsen said:“Trading on trust and confidence has deteriorated. It is time, as a collective, to bring this back. Business owners cannot afford to bury their heads in the sand; they should protect themselves and insure against the potential insolvency of their customers.”
Overall, business owners reported 61% of their customers said they were doing well in terms of their revenue, going steady with sales and generally content with the business environment.
Yet, business owners were sceptical about this prognosis, with only a quarter (26%) believing what they were told.