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1-in-7 Eastern businesses struggling to pay debts by due date

Around one-in-seven (13%) companies in the East of England is struggling to pay debts by their due date, with the same proportion (13%) having to renegotiate payment terms with creditors, according to new research from the Eastern branch of insolvency and restructuring trade body R3.

The survey, carried out for R3 by research firm BVA BDRC, indicates that other signs of acute business struggles are also relatively widespread in the region. One-in-sixteen (6%) local businesses say they would be unable to pay their debts if interest rates were to increase by a small amount, while one-in-fourteen (7%) are just paying the interest on their debts and not the debt itself.

The R3 report has, however, found that signs of business distress amongst Eastern companies fell over the course of 2018. Almost half (48%) of businesses (down from 58% in April 2018) say that they have recently experienced at least one of the following: 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 Chair Mark Upton, a partner at Ensors Chartered Accountants in Suffolk, said: “Tougher trading conditions and much uncertainty over the future of the economy have threatened the health of a significant chunk of our region’s businesses and hampered their ability to generate capital to fund growth.”

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’.

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.

“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.”

Photo: R3 Eastern Chair Mark Upton, partner at Ensors Chartered Accountants. [Photographer/Copyright: Roger Barcham, BMS Imaging]

Sue Wilcock