THE number of northern businesses just paying interest on their debts has risen to 45,000 – up from 10,000 in May 2013.
Research by insolvency trade body R3 shows that 13 per cent of businesses in the north are in this position, the same number as when figures peaked in February 2013.
Paying just interest on debts and not the debt itself is a key indicator of “zombie businesses.” However, rather than a return of the “zombie business” phenomenon, insolvency practitioners suspect that late payment and cashflow problems associated with growth are behind the latest rise.
Richard Wolff, North West chair of R3, 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 cashflow is critical.”
The research, carried out by BDRC, shows that 13,000 businesses in the North (four per cent) are struggling to repay their debts, while 29,000 are negotiating payment terms with their creditors and a similar amount would be unable to pay if there was a small rise in interest rates.