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SMEs 'write off debts worth £5.8bn'

Britain's small to medium-sized enterprises wrote off a combined £5.8bn in the last financial year, the equivalent of more than £21,000 every day, according to new research.

Analysis by Direct Line for Business shows almost one in five SMEs (19 per cent) had written off debts, averaging £31,330.

Almost one in 10 claimed to have written off debts in excess of £100,000.

The most common reason to scrap unpaid debt was that a supplier had become insolvent and was therefore unable to pay (29 per cent).

This was followed by 17 per cent of firms who said they did not think a supplier had sufficient funds to cover a debt.

Some 82 per cent of SMEs said they currently have balances outstanding, with the average firm owed £62,957.

Forty per cent did not know how much they are owed.

The survey suggests there is a lack of awareness about the channels for reclaiming unpaid income. Nearly two-thirds of SME owners and decision-makers were unsure what an N1 Claim form, the document used to start a civil claim in English courts, is for. Only 16 per cent knew exactly what it is for.

Nick Breton, head of Direct Line for Business, said: "With more than a million SMEs based across the UK, these enterprises really do make up the backbone of the British economy. However, it is alarming to see just how much hard work goes unrewarded, especially when considering that many SMEs appear reluctant to chase debts, with reasons ranging from thinking that the client may not be able to afford the cost to damaging their relationship.

"All of these debts add up and with nearly 7,000 companies estimated to have entered liquidation in the first half of 2016 alone, the potentially disastrous knock-on effects of writing off monies owed are clear.

"While maintaining a healthy relationship - and thus ensuring future income - is essential for businesses, many small businesses cannot survive without a regular cash inflow. SMEs should ensure that they are fully aware of all legal avenues designed to help them recoup all of their owed monies. In addition, they should ensure they have the correct insurance in place to account for any loss in earnings that may come about if and when a client or supplier is unable to fulfil their financial obligations."

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