R3 warning on levels of cashflow distress

There has been a drop in the number of so-called 'zombie' companies who are servicing their interest alone, but many businesses are displaying even more acute signs of distress, according to research by insolvency industry body R3.

The latest R3 business tracker calculates that levels of 'zombie' businesses declined by 26% from June 2012 to May 2013 and have fallen to just over 100,000, from a peak of 160,000 in November 2012. However, it identifies over 200,000 businesses that are either negotiating with their creditors or struggling to pay debts when they fall due - a technical definition of insolvency.

R3's research shows businesses in these two categories have increased by 7,000 and 24,000 respectively over the last 12 months. In the past three months, the jump is even more pronounced: 33,000 more businesses are struggling to pay debts when due; 63,000 more businesses are negotiating with their creditors.

Liz Bingham, R3 President, said: 'These businesses are in a very perilous position. While they have yet to enter formal insolvency procedures, businesses with such serious cashflow problems may find that the day of reckoning is not too far off. In this situation, businesses will struggle to access new bank lending or credit facilities.'

Bingham also cautioned while the numbers of zombie' companies may be falling: 'This is not necessarily because they are returning to the land of the living; far bigger problems are occupying their thoughts. The "zombie businesses" may be shuffling towards far more dangerous territory. Negotiating terms with creditors could be seen as a proactive step to stave off insolvency, but it may only store up problems for later.'

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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