What is Bad Debt Protection
Content
The impact of bad debt can have significant consequences on your business. One bad debt from a large customer can damage cashflow, potentially derail operations, and threaten your financial stability.
Cashflow is the lifeblood of operations. Without ready access to working capital, companies risk being unable to meet immediate obligations. Reliable cashflow is vital for maintaining operational stability, protecting stakeholder confidence, and enabling the business to seize opportunities even in turbulent markets.
In 2025, three in four UK SMEs reported being owed £18K– £22K in overdue invoices, underscoring the growing threat of non-payment. Bad debt protection (BDP) is a financial safeguard that protects businesses from losses resulting from customers’ failure to pay due to insolvency or default. Acting as a critical cashflow stabiliser, BDP strengthens accounts receivable management, softens the financial impact of customer failures, and equips SMEs to navigate economic instability with greater confidence.
This article examines the features and benefits of bad debt protection as an indispensable tool for safeguarding operations and supporting sustainable business growth.
The problem
Late payments are deeply entrenched in the UK B2B space, with nearly half of invoices being delayed, significantly contributing to a growing trend toward financial strain for SMEs. The cumulative impact of unpaid liabilities—often exceeding £20K per business—is jeopardising growth, driving reliance on expensive credit, and increasing the risk of business closures.
Insolvency in the SME sector reached elevated levels in early 2025, marked by sharp increases in some months and a rise in creditor liquidation actions. While overall corporate insolvency numbers are now easing modestly, they remain historically high, continuing to exert pressure on B2B liquidity and underscoring the critical importance of protective measures, such as bad debt protection.
The Solution
BDP acts as a vital cashflow safety net by reimbursing a significant portion of outstanding invoices when customers default due to insolvency or non-payment. This protection plays a vital role in maintaining liquidity and helping businesses meet immediate obligations, preserve financial stability, and focus on growth without being derailed by unexpected payment failures.
How bad debt protection works
It is a simple, straightforward process:
- Select a provider
- Choose a provider experienced in your industry—they’ll better understand the risks and nuances of your customer base.
- Check if the policy covers domestic and export customers.
- Ensure the provider is tech-enabled with advanced fintech capabilities to ensure fast payment. The best providers transfer funds within 24 hours of submitting an invoice.
- Share Your Details
- Provide your customer list, sales volumes, and payment terms. The provider will conduct credit checks on key customers to be insured.
- Maximise cost efficiency by protecting only high-risk accounts.
- Evaluate policy
- Understand the full cost structure, including premiums and service fees. Assess the price, as well as the quality of coverage and service.
- Review any per-customer or per-claim limits to make sure they fit your business profile.
- Sign the policy and get started
Key features and benefits
BDP provides your business with the flexibility and confidence to grow, even as economic uncertainty increases the risk of customer non-payment.
The following are the key features and benefits that bad debt protection provides:
- Recover up to 90% of unpaid invoice value.
- Covers customer insolvency & defaults with immediate payment. Meet financial obligations in a timely fashion to ensure uninterrupted operations and enable growth initiatives to expand.
- Guaranteed payment on protected invoices.
- With the assurance that bad debts are covered, businesses can confidently extend credit to new customers and focus on expansion without fear of destabilising setbacks.
- Supports financial flexibility
- Insured receivables often strengthen access to credit, as they become securitised assets—improving borrowing terms and overall financial flexibility.
BDP empowers businesses to operate confidently by safeguarding cashflow, mitigating revenue loss and supporting financing options. However, to maximise cashflow efficiency, pair BDP with invoice finance, a robust cashflow management strategy to accelerate invoice payments.
Invoice finance
SMEs can further safeguard their financial structure against liquidity gaps by utilising invoice finance. This simple, yet powerful funding strategy leverages the value of your company’s sales ledger to accelerate cashflow.
Invoice finance (also known as factoring) empowers a business to unlock the value tied up in unpaid invoices by selling receivables to a finance provider. The provider advances most of the invoice value upfront—up to 90% minus a small handling fee —within 24 hours, improving cashflow immediately. The provider then collects payment directly from the debtor (the business’s customer) and returns the remaining balance to the business. This provides companies with immediate access to working capital, eliminating the need to incur debt or strain internal resources by chasing accounts receivable.
If the provider is unable to collect payment on an invoice, the business typically repays the advanced funds. However, when paired with BDP, SMEs are shielded from most losses due to customer insolvency or default, providing fast and reliable access to capital with minimal payment risk, even if customers pay late or not at all.
Conclusion
In today’s challenging economic climate, where late payments and insolvencies continue to threaten SME stability, safeguarding cashflow has never been more critical. Bad debt protection provides a reliable safety net, ensuring that customer defaults—whether due to insolvency or non-payment—don’t derail operations or limit growth opportunities. When combined with invoice finance, it creates a powerful, end-to-end funding and risk-mitigating solution that accelerates access to working capital.
For SMEs seeking to protect their financial health, maintain operational stability, and pursue growth with confidence, pairing bad debt protection with strong cashflow management is not just a prudent choice—it’s a key imperative for long-term business resilience.
Contact us to protect and optimise your company’s cashflow with technology-focused solutions tailored to meet your funding needs and risk tolerance.
Key Takeaways
- Reliable cashflow is vital for maintaining operational stability. Even one bad debt by a large customer can damage cashflow, potentially derail operations, and threaten your company’s financial stability.
- Bad debt protection (BDP) acts as a vital cashflow safety net by reimbursing a significant portion of outstanding invoices when customers default due to insolvency or non-payment.
- BDP strengthens accounts receivable management, softens the financial impact of customer failures, and equips SMEs to navigate economic instability with greater assurance.
- Pairing BDP with enhanced cashflow strategies, such as invoice financing, is a key imperative for long-term business resilience.
eCapital UK
eCapital Commercial Finance (eCapital) is a leading invoice financier providing funding facilities up to £4m to support the growth of SMEs through the provision of flexible working capital facilities. With five fully functional UK regional offices, its local teams are uniquely placed to respond promptly and purposefully to the cashflow needs of its clients. The business has grown significantly since its launch in 2001, providing over £12 billion of funding to businesses. It is majority owned by eCapital, a US based financial services business with interests in the USA and Canada.
