More small and medium-sized businesses are seeking cover against customer insolvency and payment default as unpaid invoices rise and cashflow pressures deepen, according to Bibby Financial Services.
The SME funder said its latest SME Confidence Tracker found that the average amount owed to SMEs in unpaid invoices has reached £66,770, up 10% year-on-year, while 30% of firms have written off almost £30,000 on average because of customer insolvency or payment default.
Bibby Financial Services said the figures were feeding through into higher demand for bad debt protection, with 60% of its new business prospects in 2025 choosing to include the product as part of their funding package.
The lender also said businesses were increasingly opting to protect their full sales ledger, rather than covering only a small number of customers, suggesting that payment risk is spreading more broadly across supply chains.
Derek Ryan, chief executive for North West Europe at Bibby Financial Services, says: “Economic pressures are driving caution among many businesses who are urgently seeking ways to protect against insolvency and protracted default of customers, so we have seen a significant increase in funding applications that include bad debt protection.
“For many, it’s no longer about simply protecting against one or two problematic debtors, and we are seeing more SMEs covering their entire sales ledger, which indicates the extent of supply chain pressures today.”
The business said the trend comes as financial strain on UK companies continues to build. It cited government figures for February 2026 showing corporate insolvencies reached 1,878 during the month, up 7% on January 2026.
Its research also found that 62% of SMEs said customers were taking longer to pay in full than a year earlier. Almost one in five, or 19%, said they had delayed paying creditors in order to preserve cashflow.
Ryan adds: “This is a clear reflection of the uncertainty many firms are currently facing because of lingering high costs and trading volatility.
“However, unlike late payment, which is a widely accepted issue – though we’re pleased to see the government is now taking action on this – bad debt is the hidden cost-of-doing-business.
“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.
“There’s also a strong indication that, in certain cases, organisations are adopting deliberate payment delay tactics to protect their own financial positions. This is a worrying development that should ring alarm bells for businesses of all sizes, as well as for policymakers seeking to safeguard the resilience of supply chains across the UK economy.”
Theo Noyek, director at Theo’s Timber, says: “We’re seeing the impact of the conflict in the Middle East play out very clearly on global supply chains. Much of our materials supply comes from China and the Far East through the Strait of Hormuz.
“But shipping diversions there have pushed up typical delivery times from 12 to 16 weeks, and every delay racks up costs and prices.
“This is having a significant knock-on impact for our customers, including driving up insolvencies which seem stubbornly high and reminiscent of 2008.
“Thankfully for us, we incorporated bad debt protection from BFS into our financial planning strategy from day one, so we’re better able to manage the current situation and protect our margins and cashflow.
“It also provides us with an added layer of confidence when we take on new customers.”
