AI for SMEs: Real Opportunities, Real Risks – How to Get it Right

Artificial intelligence (AI) isn’t just for large companies or university research projects anymore. Small and medium-sized enterprises (SMEs) across the UK are rapidly embracing AI tools to improve productivity, customer service, and efficiency. However, while AI offers exciting opportunities, it also comes with significant risks that SMEs need to carefully manage.

 

Real Opportunities for SMEs

1. Enhanced Operational Efficiency

AI can dramatically improve operational efficiency. Research from the University of St Andrews indicates that adopting AI could boost productivity in UK SMEs by up to 133%, particularly in areas such as scheduling, inventory management, and operational efficiency (University of St Andrews). For example, UK SME "Tended" provides wearable technology to enhance worker safety, using AI to detect and manage risks in real-time, significantly boosting productivity and reducing workplace accidents (Tended).

2. Improved Customer Engagement

AI-driven chatbots are becoming an essential tool for many smaller online retailers and service providers, offering round-the-clock customer support. Platforms such as Zendesk, Intercom, Tidio, and Crisp allow SMEs to handle customer queries more efficiently, helping to improve satisfaction while reducing reliance on additional human resources. While not an SME, UK-based online fashion retailer ASOS has partnered with Microsoft to enhance its AI capabilities, including a customer-facing assistant that supports personalised recommendations and streamlined online service (Just Style). This growing trend is particularly prominent in sectors such as e-commerce and hospitality, where managing large volumes of customer interactions is key to business success.

3. Administrative Task Automation

Tools such as Xero and QuickBooks now integrate AI to simplify tasks like invoicing, bookkeeping, and payroll for SMEs. These platforms use machine learning to automate data entry, reduce human error, and generate real-time financial insights. For instance, Xero’s use of AI enables automatic bank reconciliations and invoice categorisation, helping SMEs manage cash flow more efficiently. Xero also highlights how AI is evolving within accounting to support predictive insights, reduce human bias, and assist accountants in strategic decision-making (Xero Guide). Similarly, QuickBooks leverages AI to offer automated expense tracking and predictive cash flow forecasting (Simplifi Bookkeeping Blog).

 

Real-Life Risks and How to Manage Them

1. Data Privacy and Cybersecurity

As SMEs increasingly use AI, data security becomes more critical. The National Cyber Security Centre (NCSC) has published guidance warning that the integration of AI tools introduces new cybersecurity considerations, including the risks of data leakage, model manipulation, and supply chain vulnerabilities. The guidance outlines the importance of evaluating how AI systems make decisions, what data they use, and how they are protected from exploitation (NCSC Guidance).

In particular, any entities — whether SMEs, larger firms, charities or individuals — should avoid passing any sensitive or personally identifiable customer data to AI language models, especially those managed by third parties, unless proper safeguards and data anonymisation protocols are in place. This is essential not only to remain compliant with data protection laws such as the UK General Data Protection Regulation (UK GDPR) and the Data Protection Act 2018, which require organisations to ensure personal data is processed lawfully, transparently, and securely, but more importantly, to safeguard the privacy and safety of customers and individuals whose data is being handled.

2. Accuracy and Reliability Issues

AI-generated content can contain inaccuracies. This is especially important when using AI to help draft internal or external documents, blog articles, or promotional materials — references and facts generated by language models are often incorrect or non-existent. Businesses should always verify AI-generated content before it reaches customers to avoid reputational or legal issues arising from misinformation or miscommunication.

For example, Apple got into trouble when its AI-generated news alerts were found to be factually incorrect or entirely fabricated. The BBC was among the organisations to raise concerns after one such alert wrongly claimed that Luigi Mangione, the man accused of killing UnitedHealthcare CEO Brian Thompson, had taken his own life. This incident highlights how even major companies can experience damaging inaccuracies from AI-generated content (BBC News).

3. Ethical and Regulatory Challenges

AI tools can inadvertently introduce bias, raising ethical and regulatory concerns that SMEs cannot afford to ignore. These biases can arise from unrepresentative training data, poorly defined objectives, or opaque decision-making processes. For example, Amazon reportedly scrapped an internal AI recruiting tool after discovering it was biased against female applicants (Reuters).

The UK government’s "AI Regulation: A Pro-Innovation Approach" paper emphasises the need for businesses, especially SMEs, to remain transparent and accountable in their use of AI technologies, particularly when automating decisions that affect customers or employees. Clear documentation, regular auditing of AI models, and human oversight are all key recommendations for responsible AI use (UK Government).

 

Embrace AI, But Proceed with Caution

AI presents SMEs with tremendous opportunities for growth and efficiency, but it must be adopted responsibly and cautiously. Being aware of the associated risks and ensuring you have the right insurance cover will help you protect your business as you explore the exciting possibilities that AI can offer.

Importantly, no AI system should replace human oversight. Business owners and managers must continue to apply human judgement, common sense, and industry insight when deploying or reviewing AI outputs, in order to ensure any resulting business actions or recommendations reflect real-world context, common sense, and your organisation’s intentions — without potentially spreading false or misleading information, causing unintended operational mistakes, or introducing security vulnerabilities that could damage reputation, trust, compliance, or long-term business continuity.

Ratcliffes Insurance Brokers are experienced in helping SMEs protect themselves against digital risks with appropriate insurance cover.

Contact us to review your business risks and discuss tailored insurance solutions to secure your digital journey.