SMEs Face Tough Choices on Business Costs

Everyone in the business sector is holding fire on several projects, investments, hiring and potential sales, as Rachel Reeves preps another tax raising Budget. This research from Atradius suggests that many companies are facing other headwinds as well. 

UK SMEs face a widening resilience gap — the difference between the cost of escalating business risks and the limited accessible liquidity they hold to withstand them — according to a report by Atradius. Cash buffers that once offered protection are now stretched or exhausted by the costs of disruption, leaving many firms exposed.

New data from 1,000 senior decision makers and 500 UK business owners and C-suite reveals that business risks, such as supply chain disruption, customer insolvencies, cybersecurity and late payments, have cost businesses hundreds of thousands in the last 12 months — the equivalent of 76% of accessible emergency funds³. Worryingly, 17% of businesses with a turnover of £1.1–10 million have less than £50k to absorb a sudden shock.

Beyond emergency cash cushions, day-to-day resilience is also limited: 30% of firms have less than four months of operating cash flow, and 9% have under two months.

Some of the biggest risks identified in our research include rising costs, from energy bills to raw materials (51% of companies); political and policy shifts (33%), such as the lingering fallout from Brexit fallout, tax rises and Employer National Insurance Contribution increases; and AI-driven risks (32%), as firms navigate fraud, misuse, and regulatory uncertainty. The impact of this risky business environment spreads across supply chains. Customer fragility is identified as a major threat in our research: late payments are a threat for one fifth (21%) of businesses and customer insolvencies threaten 17% of firms.

The data comes against a backdrop of a third of businesses (32%) admitting they are not fully covered by trade credit insurance, with one in 10 (8%) not covered at all.  This rises to one in five (17%) for businesses with a turnover between £500k and £1 million. In fact, 56% of businesses say they rely on cash reserves to ‘self-insure’; a high-risk way of saving for unexpected business losses that can expose a business to large and unexpected losses.

As well as the resilience gap, SMEs also face an exposure gap, the difference between the cost of trade credit insurance and the potential financial losses they assume when self-insuring. SMEs that chose to self-insure faced risk costs that were more than 700% higher than the cost of a trade credit insurance premium. Put another way, the average cost of self-insuring risk events was equivalent to paying over eight years of premiums in a single year.

In the last 12 months, 89% of businesses reported a significant impact from a range of risks, from supply chain disruption to unpaid or late customer payments. More than half (62%) of C-Suite and business owners surveyed said these risks cost their business more than £100,000 in the last year, while nearly one in five (19%) faced costs of more than half a million (£500,000+).

Reflecting on the impact these risks had on their businesses, one in five (22%) said it put their survival at risk, while almost half (49%) cited reduced profitability and 14% had to make redundancies.

With further tax rises and uncertainty on the horizon ahead of Chancellor Rachel Reeves’ Autumn Budget, two in five (41%) are concerned these risks will increase in the next year. One in 10 (8%) are worried about their future and are not confident they could absorb further shocks underlining how precarious the resilience gap has become.

James Burgess, Head of Commercial at Atradius UK, says: “This report is a wake-up call for UK businesses, and SMEs are particularly exposed. The resilience gap is widening, with many firms drawing on emergency cash reserves that may not last as the economic environment for businesses continues to be tough. With costs rising across the board, some assume trade credit insurance is unnecessary, but one failed payment from a customer could push reserves to their limits, leaving businesses dangerously exposed. Compared to the losses we’re seeing, it’s an investment that pays for itself. Our message to business leaders is simple: don’t wait for the next shock to test your resilience.”