The impact of bad debts on a business

  Published: 28th February 2019

Bad debt can have a detrimental impact on a business, putting its survival at serious risk. Research has found that an astounding one in four SMEs within the UK have suffered from bad debt, equating to 1.3 million businesses at risk of insolvency.


This eye-opening figure highlights the importance for businesses to take every necessary step to reduce its risk to bad debt. Below we will take a look at the definition of a bad debt, and steps businesses can take to reduce its exposure.


What is a bad debt?


Put simply, bad debt is money owed to you by a client, that you are unable to collect and therefore have to write off. A bad debt can happen for any number of circumstances, but for the majority of the time it will either be due to offering credit to an unsuitable customer, or due to a customer’s circumstances changing.


One of the more obvious impacts of experiencing a bad debt is on a business’ cash flow, affecting profitability and for an estimated 5% of business that have been victim to bad debt, plans for further investment are delayed. Worst case scenario for businesses is insolvency and according to research on average 4% of businesses will cease trading following a bad debt.

Avoiding bad debt


Due diligence


Assessing your prospective customer’s credit rating is a vital component to reducing your business’ risk to bad debt. The outcome of a credit check will ultimately allow you to make an informed decision as to whether or not your business should work with a business.


Effective credit control


An effective credit control strategy will vastly reduce your risk to bad debt, proactively chase for late payments, escalate when necessary and ensure your credit control team fully understands dispute resolution techniques.


Bad debt protection  


A bad debt protection service is ideal for those businesses looking to protect themselves from the dangers of bad debt. Here at Zodeq, our bad debt protection provides our clients with protection on up to 90% of undisputed debt, our team will proactively chase bad debts on your behalf, we will credit check each and every customer and you will receive credit insurance and debt collection from our insurance partners, Atradius.


Are you looking for the right services to ensure your risk to bad debt is kept to a minimum? Contact the team at Zodeq today for more information on how we can support your business.