More than 100,000 British businesses are owed an estimated £16bn by insolvent companies, with individuals and small and medium-sized companies bearing the brunt of this debt mountain.
In 2015, 6pc of all UK firms were creditors of an insolvent company, hitting a total of 113,000 firms across the UK, according to new data from R3, a report from R3, the trade body for the insolvency industry found.
Only 4pc of large corporations have given credit in the past year, compared to 14pc of mid-sized businesses, which employ 51 to 250 people, making this the business sector most vulnerable to these unpaid debts.
Some 7pc of companies with 50 or fewer staff have also been left out of pocket by debtors.
Small business owners are among the hardest hit by bankrupt customers Photo: PHOTOLIBRARY
The UK’s smallest businesses, with between two and five staff, are also the most likely to be owed money by five or more insolvent firms, despite being the least capable of dealing with the strain on cashflow.
“Growing businesses encounter two classic problems: going for growth by taking on new customers without properly checking their creditworthiness; and a lack of controls to monitor their exposure,” said R3 president Phillip Sykes.
“When you have a small company exposed to more than five different insolvencies, there’s a cause for concern. There could be real cash flow issues there.”
This is the first time that R3 has conducted a comprehensive study into the number of businesses that have been left in the red when their customers have become insolvent.
The £16bn figure was reached by extrapolating data from Her Majesty’s Revenue & Customes (HMRC), which is owed about 24pc of unsecured debt in cases of insolvency.
In its latest tax gap report, HMRC estimated it writes off £4bn a year as a result of unpaid taxes following insolvencies, which generated a final figure of £16bn in unsecured debt in insolvencies last year.
“Businesses need to be savvy about who they trade with,” warned Mr Sykes.
“If a business isn’t paid up-front or on delivery, or pays in advance for its own supplies, it is essentially lending money to those with whom it is trading. This sort of 'lending’ doesn’t have the same protection in insolvency situations that secured lending, like a mortgage, enjoys.”