One in five firms ‘maxed out’ overdraft

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Almost a fifth of businesses in Yorkshire and the Humber are regularly using their maximum overdraft facility, according to research by R3, the insolvency trade body.

R3 says the number of businesses in the region that are showing signs of distress is below the national average, but remains significant.

Signs of distress include falling sales, decreased profits, declining market share and job cuts.

Nineteen per cent of businesses in the region admit to regularly using their maximum overdraft facility, compared with 30 per cent across the UK. However, 35 per cent of businesses in the region say they are experiencing reduced sales volumes, close to the national figure of 37 per cent.

Yorkshire R3 committee member Gareth Self, an insolvency practitioner with the Sheffield-based P&A Group, said: “While businesses in the region seem to be faring better than in some parts of the country, many are still reporting signs of distress and yet we have not seen the number of corporate insolvencies we would expect.

“This could be down to a number of factors but will certainly have been influenced by a shift in creditor attitudes. With the realisation that economic recovery is still not on the horizon, creditors – including HMRC and the banks – have been giving businesses ‘Time to Pay’ on their taxes and more breathing space to settle their debts.

“But why then are so many businesses reporting distress? Well, regardless of the sympathetic attitudes of creditors, consumers’ disposable income has shrunk, confidence is at rock bottom and the impact of this is bound to be felt.

“Suppliers and investors are also reluctant to take the plunge and support businesses perceived to be struggling so we are seeing more and more suffering but this is not manifesting itself in business failures.”

More than two out of every five businesses in Yorkshire and the Humber say profits have fallen, while one in three have suffered a recent fall in market share and one in six have had to sack staff.

However, there are some encouraging signs, says R3, with more than one in five businesses from the region investing in new equipment and a similar proportion saying their business is expanding.

R3’s research also highlights the problems retailers area suffering across the UK.

Gareth Self said: “The retail sector is in a state of flux.

“Retailers live or die on the back of the consumers’ spending power and the likes of Game, Peacocks and La Senza show us that the consumer can be fickle.

“Furthermore, 18 million people are worried about their current level of debt and this is undoubtedly having an impact on their discretionary spending, together with increases in the costs of basics such as food and heating.

“The high street is changing, as are consumer spending habits and as out-of-town and online shopping becomes increasingly popular, these findings indicate that many retailers are not keeping up with the pace.”