Spike in businesses struggling with debt

THE number of Northern businesses just paying interest on their debts has risen to 45,000 – up from 10,000 in May 2013, according to research by insolvency trade body R3.

Its figures show that 13% of businesses in the North are now in this position, the same as when figures peaked in February 2013.

R3 said interest only debt repayment is a key indicator of a “zombie” business, but insolvency practitioners suspect the increase is down to late paying customers and cashflow problems associated with growth.

Richard Wolff, North West chair of R3 and head of corporate recovery and insolvency at JMW Solicitors in Manchester, said: “The first flush of growth generated plenty of cash for businesses but now some are experiencing the side-effects of growth too. Over-trading and late payment can easily put businesses with bulging order books in a position where cash flow becomes a major headache.

“Access to new finance is still tight so businesses low on cash have limited options to give themselves some breathing room. Making the minimum payments on debts or renegotiating payment terms with creditors can free up some extra cash and buy some time, but it’s not a long-term solution. Healthy cash flow is critical.”

The research, carried out by BDRC, shows that 13,000 businesses in the North, or 4%, are struggling to repay their debts, while 29,000, 8%, are negotiating payment terms with their creditors. A similar amount would be unable to pay if there was a small rise in interest rates.

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