22,000 firms in the north ‘struggling to pay debts’

AROUND 22,000 firms – equivalent to 7% of businesses in the north – are struggling to pay their debts when they fall due, research from insolvency tradebody R3 shows.

That figure rises to 10% if interest rates rose, according to the latest Business Distress Index, which measured four indicators of zombie businesses.

It also reveals that 6% of firms are having to negotiate payment terms with creditors while 3% are managing only to pay off the interest on debts but not reduce the debt itself.
 
However some firms are showing stronger signs of growth, with 58% saying they had invested in new equipment (up from 16% last quarter) and 34% reporting an increase in sales (up from 20%).
 
Jeremy Oddie, North West regional chair of R3 and head of recoveries at accountants Mitchell Charlesworth in Manchester, said: “While some firms are showing encouraging signs of growth, our research also highlights the presence of a significant number of zombie businesses within the economy. These are firms which have been ‘running on empty’ for quite some time and with no reserves left in the tank, they may be unable to continue for much longer.
 
“Some zombie businesses have managed to stave off insolvency for a prolonged period. The danger for businesses that are on the edge is that any change of circumstances, such as a rise in interest rates, the loss of a major customer, or suppliers upping their prices, will mean that they will not be able to hang on any longer.”