Tuesday, 31 July 2012 14:26

Night of the Living Debt

Night of the Living Debt as 'Zombie Businesses' take over the UK!

Watch your backs people - there's a zombie revolution taking place, and the bloodthirsty brutes have got a taste for your money.

R3, the Association of Business Recovery Professionals, says there are already 146,000 'zombie businesses' out there, including much of the retail sector, leaving Britain's high streets looking like something out of a horror movie, financially speaking.

There are four ways to decide if a company is a zombie business:

1. They can pay their interest, but not enough to reduce their debt.

2. An increase in interest rates would push them over the edge.

3. They struggle to cover their debt repayments on schedule.

4. They need to negotiate different payment terms with suppliers.

Together, these factors leave companies surviving - just - but not in a healthy condition, and it's not only the retail sector that's affected.

Zombie Businesses in Numbers

In retail, 18% of companies say they could not cope with any increase in interest rates - a worrying prospect with the Bank of England base rate still at an all-time low of 0.5%, from where the only way is up for the 31,000 affected businesses.

In the construction sector, 16% of businesses can't afford to repay any of their debts, instead simply surviving on interest-only repayments - and while this proportion is smaller, it amounts to more individual companies, at 37,000.

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And nationwide across all sectors, an estimated 8% of companies, 146,000 in total, are believed to be subsisting in similar circumstances.

Zombie Businesses in Words

Lee Manning, president of R3, sums up the situation for these 8% of British firms: "Essentially, a zombie business is one that is on the edge of insolvency, but has been holding on - often for a prolonged period of time."

For these companies, he adds, "any change of circumstances" represents a significant danger - from rising interest rates, to increased supplier costs, to losing a major customer.

And it's not just losing a customer that could push many firms over the edge - as we've seen in recent reports from many sectors, late payments and unpaid invoices are causing financial headaches for many businesses where cashflow is concerned.

Surviving the Zombie Apocalypse

We've all seen the movies, and we all know how fast zombieness can spread - and in any supply chain, in retail, construction or any other sector, there are suppliers just waiting to raise their prices, and customers who could delay payment without warning.

If you don't want these zombie neighbours in your supply chain taking a bite out of your cashflow, you need to make sure you're doing all you can to protect your finances - and that's where good credit control comes into play.

Effective invoicing and prompt debt recovery action is the business equivalent of an axe to the head when zombie businesses begin cannibalising your profits, and while nobody wants to drive another company into insolvency (except, perhaps, a direct competitor...), it's a bloodthirsty economy right now.

Take steps to protect yourself where you can, and you can batten down the financial hatches, so you're ready when the zombie apocalypse arrives at your door...

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Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.

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Image "[40/365] Zombie Apocalypse" by flickr user Pascal is licensed under CC BY 2.0

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