Research from Direct Line has revealed that SMEs wrote off the equivalent of more than £21,000 every day in 2015-16.

The most common reason for written-off debts was suppliers and customers becoming insolvent, with 29% of respondents facing this problem.

Nick Breton, head of Direct Line for Business, said: “With more than a million SMEs based across the UK, these enterprises really do make up the backbone of the British economy.

“However, it is alarming to see just how much hard work goes unrewarded, especially when considering that many SMEs appear reluctant to chase debts, with reasons ranging from thinking that the client may not be able to afford the cost to damaging their relationship.”

Just under a fifth (19%) of respondents said they had written off debts at an estimated average loss of £31,330.

9% claimed to have written-off debts of over £100,000.

Meanwhile, 82% of SMEs still have balances outstanding from their debtors, while only 16% could name the form used to start a civil claim in court.

Nick claimed that unpaid debts caused nearly 7,000 companies to enter liquidation in the first half of 2016.

He added: “While maintaining a healthy relationship – and thus ensuring future income – is essential for businesses, many small businesses cannot survive without a regular cash inflow.

“SMEs should ensure that they are fully aware of all legal avenues designed to help them recoup all of their owed monies.

“In addition, they should ensure they have the correct insurance in place to account for any loss in earnings that may come about if and when a client or supplier is unable to fulfil their financial obligations.”