Irish SMEs writing off 'bad debt' last year, wrote off over €34,000 on average

Irish SMEs continue to face significant bad debt losses

• Over half of the affected businesses (54%) had to write off up to €10,000, 16% wrote off between €10,000 to €20,000, and 10% wrote off between €20,000 to 50,000
• Over half (56%) say it has become harder to secure business funding in the past six months
• A quarter of SMEs report that between three to five of their customers have either become insolvent or ceased trading
• 55% believe banks are less willing to lend to small businesses now compared to six months ago

Just over four in ten (43%) of Irish SMEs have suffered from bad debt in the last 12 months, according to new research conducted by Bibby Financial Services Ireland, a leading provider of financial support and funding solutions to Irish SMEs.

This issue is most prevalent in the manufacturing sector, with over half (53%) of businesses in that industry saying they’ve had to write off bad debt, followed by transport/distribution/haulage (50%), wholesale (44%), services (41%), and construction (36%). When cash flow is such a vital lifeline for business survival, the repercussions of bad debt can be severe on all turnover bands, not just small businesses. Such repercussions include delayed supplier payments, halted projects, staff layoffs, or even business closures.

A staggering 65% of SMEs who have suffered from bad debt in the last 12 months say that they are running at a loss, with 62% saying they don’t have the cashflow to grow, and 53% just about breaking even. Over half of the affected businesses (54%) had to write off up to €10,000, while 16% had write offs of €10,000 to €20,000, and 10% had to write off €20,000 to 50,000. For many SMEs, these figures represent a substantial portion of their annual revenue or profits, making recovery from such setbacks incredibly challenging.

Over two thirds (68%) say it’s taking longer for customers to pay invoices in full, compared to one year ago. While the survey noted that this issue is impacting across all sectors, those that have seen a significant issue are the transport/distribution/haulage sector (75%) and the manufacturing sector (71%).

In addition, over the last 12 months, a significant number of SMEs have faced the troubling reality of customer and supplier insolvencies, adding further strain to their operations. A quarter of SMEs report that between three to five of their customers have either become insolvent or ceased trading, which highlights the financial fragility many businesses are encountering. This not only results in a loss of revenue but also creates a domino effect, where unpaid debts and disrupted contracts can leave SMEs with cash flow issues, complicating their ability to meet their own financial obligations.

On the supply side, 30% of SMEs have seen one to two of their suppliers become insolvent or stop trading in the past year. As SMEs rely on a network of suppliers to maintain their operations, these disruptions can impact production timelines, lead to stock shortages, and force businesses to find new partners at potentially higher prices or less favourable terms. These insolvencies underscore the interconnected nature of modern supply chains and how the financial health of one entity can rapidly affect others, particularly in a challenging economic environment.

The growing financial burden is compounded by the difficulty SMEs face when trying to access external finance. Over half of businesses (56%) say it has become harder to secure funding in the past six months, and 42% report an increased need for external finance. Despite this growing need, 55% of businesses believe that banks are less willing to lend to small businesses today compared to six months ago.

A significant number of businesses (53%) have experienced a reduction in available finance or credit from their banks or other financiers in the last six months. Reasons for this decrease include businesses being deemed high-risk (38%), poor business performance (30%), inadequate collateral (30%), and the inability to meet financiers' criteria (28%).

For SMEs, managing rising costs has become a critical challenge, with energy costs emerging as the most pressing issue for 30% of businesses, followed by wage expectations/labour costs (19%). These challenges not only impact day-to-day operations but also threaten the long-term sustainability of many SMEs, highlighting the urgent need for targeted support to alleviate financial pressures.

Many businesses are turning to external business finance to fund their business. Among the most popular forms of external finance are:

• High street banks (49%)
• Invoice financiers or asset-based lenders (15%)
• Challenger banks (11%)
• Fintech lenders (9%)

Many businesses find the external finance landscape to be complex and disjointed, with 54% of respondents acknowledging the difficulty in navigating this space. Nearly half (52%) of businesses say they wouldn’t know where to start if they needed to use external finance, and 42% report not knowing who to trust for reliable business financial information and advice. There is a clear requirement for more accessible, unbiased financial advice, as 65% of businesses express a desire for better online resources to guide their financing decisions.

Despite the challenges, many businesses remain focused on growth and investment. SMEs are planning to invest in areas such as recruitment (28%), staff training (28%), digital technology (28%), new products and services (27%), and sustainability (25%). Businesses are continuing to plan for investment, with the average expected investment figure standing at €275,500.

This indicates that while financial constraints are being felt, many SMEs are still optimistic about growth and are committed to improving their operations and offerings, especially in areas that could lead to long-term competitive advantages. The willingness to invest in people, technology, and sustainability also suggests a forward-looking approach, even in the face of ongoing financial pressures. However, the inability to access the necessary funding to support these investments remains a major roadblock.

Mark O’Rourke, Managing Director of Bibby Financial Services Ireland, said:

‘Bad debt is becoming increasingly prevalent for Irish SMEs, with 43% of businesses reporting significant financial strain in the past 12 months. Late payment is also a significant issue, as it seems that some businesses are taking longer to pay their invoices in a bid to keep hold of cash for longer and use it for cashflow, but this has the knock-on impact of starving other businesses of the cash they need to survive, seriously impeding the ability of businesses to invest and thrive.

The impact of unpaid invoices and insolvencies is devastating—many businesses are forced to write off thousands of euros, leaving them with limited resources to invest or grow. Additionally, the difficulty in accessing external finance and the rising costs of energy and labour are compounding the pressures on SMEs. With over half of businesses finding it harder to secure funding, it’s clear that the financial ecosystem is becoming more challenging.

However, despite these challenges, there remains a strong sense of resilience and determination within the SME sector. Many businesses are adapting by focusing on strategic investments in key areas such as technology, recruitment, and sustainability, ensuring they are positioning themselves for long-term growth. While the road ahead may be tough, SMEs continue to demonstrate their vital role in the economy, with many optimistic about their future and committed to finding new opportunities for innovation and success. With the right support and guidance, Irish SMEs can thrive, contributing to a more robust and resilient economic landscape.’

Download the full report here.

More about Bibby Financial Services

Bibby Financial Services Ireland is Ireland’s largest independent provider of financial funding solutions. We offer tailored and accessible Invoice Finance solutions for Irish SMEs to meet a range of business needs including new equipment purchase, growth and expansion, management buy-ins, merger and acquisition activity.

To help businesses mitigate the inherent risks associated with bad debt, a common challenge for Irish SMEs, we offer comprehensive Bad Debt protection services. Seamlessly integrated with invoice finance, this optional service safeguards businesses against bad debt and contractual defaults.