Surge in number of businesses vulnerable to interest rate rises

More than 79,000 businesses in the UK say they would not be able to repay their debts if interest rates were to rise by even a small amount.

That’s an increase of nearly 60,000 since last September.

The figures are based on a long running survey conducted by the insolvency and restructuring body, R3. Its researchers also found that 96,000 firms were only paying interest on their debts.

Andrew Tate, spokesperson for R3, said: “This is the first increase in the number of businesses worried they would be unable to cope with an interest rate rise since 2014, and it coincides with a period of slower than expected growth and a small rise in corporate insolvency numbers.

“UK firms have faced a challenging 2016 and early 2017: the sharp fall in the pound has made things difficult for importers, while a rising National Living Wage and the roll-out of pensions auto-enrolment have added to businesses’ running costs.

“Only paying the interest on debts is not necessarily a sign that a business is in distress: it may be that a company is taking advantage of low rates to invest in its operations or assets. But only repaying the interest is also a common characteristic of a ‘zombie business’ – a business only able to keep going because of an ultra-low cost of borrowing and with little chance of survival.

“The research shows that there are tens of thousands of firms currently walking a very tight line. Rising inflation may also lead to a double-whammy for struggling businesses: it may increase the chance of the Bank of England raising interest rates, and it would undermine the consumer spending that has driven the economy over the last year.”

The research highlights the need for firms to keep a tight rein on credit control and to take prompt action over late payment of invoices.

Firms in distress often only pay creditors who actively chase up debts and ignore those who take a more relaxed approach. If a creditor waits for too long, the distressed firm may go out of business making the debt very difficult if not impossible to recover.

A letter from a solicitor is often enough to secure payment. If not, there are several other measures that can be taken up to and including court action.

Please contact Neil O’Callaghan if you would like help with credit control and debt collection.