Acute Cashflow Problem Companies On The Increase!
According to R3, the insolvency trade body for Insolvency Professionals, around 134,000 businesses are trading whilst insolvent - this is an increase of 24,000 in the last year!
These are companies that are struggling to pay their debts as they fall due and therefore fall within the definition of an insolvent company. This indicates that the outlook for businesses struggling with their cashflow is deteriorating in the present market conditions.
Over 200,000 businesses are now either struggling to pay their debts when they are due or are negotiating extended payment terms with creditors.
The number of ‘zombie’ companies has actually declined from 146,000 to 108,000 - a zombie company is a company that can only pay the interest on its debts. The most likely explanation is that cashflow problems for these companies have become more acute and these companies have now entered a more serious phase.
Liz Bingham, President of R3 said “Businesses struggling to pay debts when they fall due are in a very perilous position. While they have yet to enter formal insolvency proceedings, businesses with such serious cashflow problems may find the day of reckoning is not too far off.”
Is there going to be a fall out of these struggling businesses as the economy picks up and lenders start to make their minds up about which businesses to support?
Liz continued “The ‘zombie’ business theory assumes that keeping capital and talent tied up in ultimately unviable businesses crowds out others. However, the long-delayed failure of struggling businesses may cause a short term jump in unemployment, and could hurt other businesses too.”
If you are concerned about the cashflow of your company or a client company, please call Tim Corfield or Richard Owen for a free, confidential chat to see how we could help, Tel: 01922 722205 or your local number, if outside office hours feel free to call 07786 965009 and we will get back to you promptly.