Weaker economy drives surge in SMEs seeking bad debt protection

Small and medium-sized enterprises (SMEs) across the UK are increasingly turning to financial safeguards as mounting economic pressures expose them to rising levels of unpaid invoices and customer defaults, according to new findings from Bibby Financial Services (BFS).

The latest BFS SME Confidence Tracker paints a concerning picture of business cashflow health. On average, SMEs are now owed £66,770 in unpaid invoices, a 10% increase compared to the previous year. At the same time, nearly a third (30%) of firms report having written off close to £30,000 due to customer insolvency or payment default over the past 12 months.

In response, businesses are taking a more defensive approach. Demand for bad debt protection has surged, with 60% of BFS’s new business prospects in 2025 opting to include such cover as part of their funding arrangements. Notably, SMEs are no longer limiting protection to a handful of higher-risk clients; many are now safeguarding their entire sales ledger, signalling that payment risks are becoming more widespread across supply chains.

Derek Ryan, CEO for North West Europe at BFS, said the shift reflects growing caution among businesses navigating ongoing uncertainty.

“Economic pressures are driving caution among many businesses who are urgently seeking ways to protect against insolvency and protracted default of customers,” he said. “For many, it’s no longer about simply protecting against one or two problematic debtors. We are seeing more SMEs covering their entire sales ledger, which indicates the extent of supply chain pressures today.”

The findings come as official figures highlight a broader rise in business distress. UK Government data shows corporate insolvencies reached 1,878 in February 2026, a 7% increase from January.

However, BFS warns that bad debt is no longer confined to companies on the brink of collapse. Payment delays are becoming more common, with 62% of SMEs reporting that customers are taking longer to settle invoices than a year ago. Meanwhile, nearly one in five firms (19%) admit they have delayed paying their own creditors to preserve cashflow.

Ryan described bad debt as a “hidden cost of doing business” with ripple effects across the wider economy.

“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,” he explained. “There’s also a strong indication that, in certain cases, organisations are adopting deliberate payment delay tactics to protect their own financial positions.”