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Firms struggle with debts but fewer businesses show signs of distress

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A significant number of businesses in the region are struggling to pay their debts by their due date and are renegotiating payment terms although overall signs of business distress amongst East of England companies fell over 2018.

New research from the Eastern branch of R3 showed that around 13 per cent of companies in the region are struggling to pay debts by their due date and the same share is renegotiating payment terms with creditors. Meanwhile, 6 per cent of local businesses say they would be unable to pay their debts if interest rates were to increase by a small amount and seven per cent are just paying the interest on their debts.

However the number of businesses seeing at least one signs of distress has fallen to 48 per cent from 58 per cent in April 2018. These included decreased profits (17%), being owed payment on invoices that are over 30 days past due (15%), regularly using the maximum overdraft facility (15%), a fall in market share (14%), a reduction in sales volumes (11%), or having had to make redundancies (2%).

R3 Eastern forecasts a mixed year ahead for businesses in the region, particularly those which are struggling and are only paying off interest on their debts and not the debt itself, which is one potential sign of a so-called ‘zombie business’.

R3 Eastern chair Mark Upton, a partner at Ensors Chartered Accountants in East Anglia, said Mark Upton continued: “Some of these ‘zombie businesses’ might eventually be able to restructure or find new investment, and grow. Others will run out of road and become insolvent. While this would mean capital could be ‘recycled’, it may also be a bit of an economic shock in itself.

He added: “Positively, the Government has recently announced plans to improve the UK’s business rescue and restructuring options. While these proposed insolvency reforms still need some work, they could eventually give insolvency practitioners more tools to help turn around struggling companies, and boost business productivity.”

Last Updated ( Friday, 08 February 2019 09:44 )