Nearly a fifth of British firms risk serious cash flow problems because they do not take adequate steps to guard against bad debts, said the ABI.

Despite recent falls in the number of company insolvencies compared with 2003, every week 50 firms still go into liquidation as a result of payment problems.

ABI figures show that:

· Around 18% of UK business failures are due to bad debt, loss of working capital or cash flow

· Each year, two thirds of small businesses have had to deal with the insolvency of a customer

· Typically, 40% of a company's assets are in its sales ledger.

ABI head of market regulation and specialist lines Chris Hannant said: “Bad debts can literally bring a business to its knees. Yet too many firms under-estimate or are not aware of, the very real risks of customer insolvency.

“All firms need to be carrying out a detailed assessment of the impact that bad debts would have on their operations.

“Trade credit insurance can play a vital role in not only helping to keep a business afloat, but in providing expertise in assessing the credit-worthiness of potential customers.”

The ABI said less than 10% of firms had insurance protection against bad debts.