Does your business need Bad Debt Protection?

Late payment remains a big issue for small businesses. According to the Federation of Small Businesses1, 37% of them have run into cash flow difficulties because of late payment.

Non-payment, however, can be much more serious and it could be more common than you think. According to some estimates, 13% of invoices2 aren’t paid each year. Many UK SMEs aren’t prepared for such a scenario. Research3 we carried out recently suggests that 49% of UK SMEs have no contingency plan should a major supplier or customer business fail. Moreover, the collapse of a major customer could significantly damage the profits of 27% of SMEs, with a fifth needing to delay plans for growth and 12% needing to make staff redundant. A quarter would “struggle but survive”. However, there are ways to mitigate risk of non-payment of invoices.

Reducing financial risk

Some Aldermore clients have included Bad Debt Protection to their existing invoice finance facility. It can protect businesses if a customer is unable to pay their invoice. Bad Debt Protection can also provide peace of mind when taking on new customers or selling more to existing customers. One Aldermore client that took on Bad Debt Protection as part of their Invoice Finance facility was Harrison Gardner Dyers & Winders. Founded in 1901, the Bradford-based family-owned firm is known for its yarn-dyeing expertise. Its customers are yarn producers, carpet makers and craft kit suppliers that demand the very highest quality.
Harrison Gardner was faced with the prospect of taking on a new fast-expanding customer. Although potentially a great opportunity, the increasing value of monthly orders meant there were cash flow issues to consider, as well as exposure to significant financial risk.

“We’re a niche business, so a customer not paying a high-value invoice would have a greater impact on us,” says co-owner, Helen Harrison. After approaching Aldermore for a solution, we provided Invoice Finance with Bad Debt Protection, which would mitigate risk of non-payment.
“When that particular customer’s business went into administration – owing us £45,000 – we were very grateful that we were protected,” Harrison admits. “We’ve used Bad Debt Protection on a couple of occasions.”

Flexible solution

A key benefit of Bad Debt Protection is its flexibility, Harrison stresses. “You can request to have it applied to your entire customer base or for selected customers, which means you can assess the risks specific to a customer and the potential impact they would have on your business should a bad debt occur.”

Harrison has also been very impressed with the support she has received from Aldermore. “Steph, Aldermore’s BDP Manager, has been brilliant. She’s always easy to reach, provides advice when we need it, and goes out of her way to keep us in the loop. We can always be frank about the situation we’re in with our customer, and be confident that Aldermore always acts with our best interests in mind.”

  • Call us on 0161 238 5015 to find out more about Bad Debt Protection.

1 https://www.fsb.org.uk/standing-up-for-you/policy-issues/finance-and-the-economy/late-payment
2 https://www.thegazette.co.uk/insolvency/content/303
3 Research conducted by Opinium Research between 10 and 20 October 2019 with a nationally representative sample size of 1,051 senior decision makers in UK SMEs

Subject to status. Security may be required. Any property or asset used as security may be at risk if you do not repay any debt secured on it.

A BDP payment of protection is subject to an agreed BDP Limit being in place and subject to compliance with the Invoice Finance Agreement and, in particular, the Conditions applicable to Bad Debt Protection. Please note that whilst BDP provides protection on qualifying factored invoices against customer insolvency, or protracted default, it is not insurance or an insurance product.