The time spent chasing late payment and the effect of dealing with bad debt is costing UK small- and medium-sized enterprises (SMEs) an estimated 286 million man hours and nearly £3.6 billion per year, new research has found.

Despite rising business failure rates, the survey, conducted by Bibby Financial Services, reveals SMEs are still failing to adequately protect themselves from bad debt.

David Robertson, chief executive of Bibby Financial Services, says: ‘It seems that far too many owners and managers are burying their heads in the sand, hoping that dealing with late payers and bad debtors will not happen to them.’

The research looked at a sample of 300 small business owner-managers with a turnover between £50,000 and £1 million. Nearly half of the respondents (47 per cent) reported they have no provisions in place should an unexpected debt arise.

Of the owners-managers that have planned for bad debt, a third rely purely on the threat of legal action (34 per cent), a quarter would use their bank overdraft facility (27 per cent), while 15 per cent plan to cover the shortfall from their personal savings.

Robertson adds: ‘Given that a lack of foresight and planning could lead to a real threat of business failure, reviewing provisions in place should be a matter of priority for small business owners and managers across the country.’