Back from the precipice – a blog by Philip King
23 January 2014
R3, the Association of Business Recovery Professionals issued some interesting research earlier this week. The number of ‘zombie businesses’ – those only able to pay the interest on their debts – has fallen to 103,000 from a peak of 160,000 in November 2012. More good news to add to the increasing trend of encouragement seen in recent weeks.
The press release accompanying the research said: “While we have seen ‘zombie business’ numbers fall and stabilise, there hasn’t been a corresponding rise in corporate insolvencies. Encouragingly, many struggling businesses will have used the unexpected grace period between recession and recovery to put their house in order, allowing them to spring ‘back to life’.”
“However, our research also shows thousands of businesses moving beyond ‘struggling but surviving’ into potentially dangerous territory.”
The research shows a record 166,000 businesses saying they are having to negotiate payment terms with creditors. 96,000 businesses say they would be unable to repay debts if there was a small increase in interest rates – the highest number of businesses in this position for over a year.
The interesting thing for me is the shift into ‘dangerous territory’ which suggests that, while the situation has improved for many, things have deteriorated further still for the most vulneable. No surprise, I guess, and what would be expected. Depending on their starting point, some businesses will have taken sufficient action to be able to recover and others won’t. The latter will now be in a more precarious position than ever, and any attempt to increase business levels as the economy recovers will be likely to see them run out of cash and into failure.
The credit management skills of ICM members will be called upon to identify which of their customers fall into that category and to determine the most appropriate action to minimise potential losses. They will need to take many factors into account, not least the possible impact of actions taken by other creditors, including, banks, who will feel more confident about pushing harder for payment in a more resilient climate.
One of the most fascinating and challenging aspects of credit management is that professionals don’t live in a bubble; their decisions and actions have to take into account numerous factors, both internal and external, many of which are outside their control. Weighing everything up and reaching the right conclusions is when they really deliver value for their businesses – in minimising losses, increasing sales, supporting strategies and so much more.