Bad Debt SME survey 2022

One third of SMEs in Ireland have written off bad debts over the past 12 months with €18,543 the average amount lost – new research from Bibby Financial Services Ireland

• Chasing unpaid invoices is the top financing concern for all Irish SME’s currently
• SME’s turning over between €10m and €25m say managing day to day cashflow is most pressing financial concern
• 43% have noticed a deterioration in length of time it takes for an invoice to be paid

One third of SMEs in Ireland have had to write off bad debts in the past 12 months, with €18,543 the average amount written off according to a recent survey by Bibby Financial Services Ireland, a leading provider of financial support and funding solutions to Irish SME’s. The bad debts were mainly due to customer non-payment or insolvency.

The issue is most prominent in the wholesale sector, with 43% saying they’ve had to write off a bad debt, followed by the business and professional services sector (38%) and transport (38%).

43% of respondents state that they have noticed a deterioration to the length of time it takes for an invoice to be paid. Over the last three months, on average it took 28 days for SMEs to be paid, with those in the construction and transport sectors saying it took the longest to be paid (37 and 32 days respectively).

The statistics also reveal that chasing unpaid invoices is the top financing problem for SMEs, mentioned by almost a third (32%) of respondents. Construction was the main sector to state that this was their key issue (45%) followed by transport (38%). The other key concerning matters for SMEs are managing the risk of customer non-payment / bad debt, as well as effective management of day-to-day cashflow, with both items mentioned by just over a quarter of the total sample (27%).

SMEs with a turnover between €5 million and €10 million note that they find it most difficult to access finance (27%), while those with a turnover between €10 million and €25 million find it difficult to manage day-to-day cash flow (53%).

There were also a number of sector variations. The top financing issue for SMEs in the manufacturing space is trying to understand the credit risks associated with their client base (36%), while wholesale SMEs say their top financing concern is being able to fund new or larger contracts until they get paid by the customer (27%).

While nearly two thirds (61%) state that their business’ cashflow is stable and meets their needs, 27% feel that they do not have the required cashflow to grow. As a result, many businesses are turning to external business finance to fund their business. Among the most popular forms of financing are:

• Business loans (38%)
• Credit cards (30%)
• Private equity (27%)
• Overdrafts (26%)
• Invoice Finance (16%)

Given the fact that business loans, credit cards and overdrafts require a business to take on even more debt – at a time when they don’t need it - SMEs should be considering more sustainable and long-term solutions such as Invoice Finance, a facility that offers businesses access to money outstanding from their unpaid invoices, helping them to access income they have already earned but not yet received.

Unlike a loan, credit card or overdraft, Invoice Finance does not involve ongoing monthly repayments. This revolving credit option means that once your invoices are paid, you can just continue the cycle – upload your invoices, draw down, use the funds and simply repeat. In addition to assisting with cashflow, it’s worth noting that Invoice Finance can also be utilised to fund a range of other growth scenarios such as investing in infrastructure or equipment, funding Research and Development, financing an expansion, Mergers and Acquisition activity or simply stabilising a business during turnaround.

Meanwhile, of those who have had to open a new business account due to the imminent departure of KBC and Ulster Bank, 55% said they found it hard to find a ‘human’ to talk to discuss their issues, while 36% said that incurring significant fees and cashflow problems caused by having to reapply for overdrafts were an issue.

Mark O’Rourke, Head of Business with Bibby Financial Services Ireland, said: “These results clearly demonstrate that managing cashflow and accessing working capital is an ongoing consideration for SMEs. Such funding is vital in ensure businesses can deal with the range of issuing facing them such as inflation and supply chain disruptions as well as offering them the opportunity to invest and grow.”

“However, SME’s also have to take steps to ensure they don’t fall foul to non-payment such as completing full background checks on all customers before extending credit, diversifying their customer base and ensuring strict payment protocols are enforced. Furthermore, business owners are often unaware of the broad range of funding options available to them as they wait for debtors to settle outstanding amounts – in many cases, alternative funding solutions are far more suited to their needs than traditional lending options and will provide SMEs with certainty of payment and more sustainable sources of liquidity.”