Two-fifths of Scottish SMEs hit by bad debt as late payments squeeze cashflow

Nearly two in five small and medium-sized businesses in Scotland have been forced to write off bad debt over the past year, highlighting mounting financial pressure across the sector, new research shows.

Data from Bibby Financial Services (BFS) reveals that 39% of Scottish SMEs – equivalent to around 139,000 firms – experienced bad debt in the last 12 months. Among those affected, the average loss due to customer insolvency or payment default reached £27,500.

The findings, published in BFS’s latest SME Confidence Tracker, underline the growing strain on business cashflow as late payments become more widespread. Scottish SMEs are now owed an average of £60,000 in unpaid invoices, with 69% reporting that customers are taking longer to settle bills compared with a year ago.

The issue is beginning to ripple through supply chains. Almost one in five businesses (19%) say they have had to delay payments to their own suppliers in order to manage cashflow, effectively passing financial pressure further down the line.

The report comes as the UK Government signals a tougher approach to tackling late payments – a move many in the sector argue is long overdue, particularly as inflation is expected to rise again and squeeze margins further.

“Rising costs are hammering cashflow while businesses wait longer and longer for payments to arrive. And as they watch suppliers and customers go under, some firms are writing off tens of thousands in unpaid invoices.”

The research also points to increasing instability within supply chains. Around 69% of SMEs reported that at least one customer had become insolvent in the past six months — up from 61% a year earlier. A similar proportion said at least one supplier had gone under, rising sharply from 54% in Spring 2025.

Business confidence appears to be weakening alongside these pressures. The proportion of Scottish SMEs expecting sales to grow over the next six months has fallen from 73% to 62% year-on-year. Meanwhile, the share of firms describing themselves as profitable has slipped from 66% to 62%.

Hart warned that broader global factors are intensifying the challenge. “Rising costs, global economic uncertainty and geopolitical disruption aren’t just slowing Scottish SMEs down – they pose a direct threat to their survival,” he said. “For businesses across the country, having robust cashflow and closely monitoring payment practices within their supply chains is more important than ever.”