Zombie Firms Will Not Reanimate This Time

26th February 2018.

Economist, Tim Harford, recently wrote an article for the Financial Times concerning ‘zombie companies’ and their continued presence in the economy. In the aftermath of Carillion and other recent liquidations, it has become increasingly important that business owners and creditors know exactly who they are doing business with.

So-called zombie firms are those who don’t make enough money to pay off their debts. They remain technically “alive” but without the capital to pay their invoices or make any sort of difference to the economy. For this reason, they have been a sore spot for economists for years, with many despairing at their continued existence and the constant drain on resources. Tim Harford sees the recent rise in interest rates as a promising sign that the prevalence of zombie firms has been minimalised, but business owners must still take precautions to keep them from coming back.

At the Credit Protection Association, we encourage all our members to know exactly who they are doing business with. We provide credit reports and monitoring software to give them complete control over their customer’s financial history, as well as their financial future. If you’re running a successful business, you cannot allow any damaging individuals into your business- undead or otherwise. It is important you know exactly who you are doing business with and whether they can be trusted to pay their debts.

While the Bank of England’s recent hike in interest rates will keep zombie firms at bay for the present, any change could lead them to resurface. Claudio Borio of the Bank for International Settlements recently gave a speech in which he worried about the tendency of low-interest rates to sustain zombie companies. Mr Borio warned that not only have low-interest rates kept them afloat, but have enhanced their endurance within the economy.

Thankfully, high-interest rates and business rates are scaring ‘zombies’ from settling on the high street. Their presence has historically created problems for small and start-up businesses, as resources that could have gone on innovation and expansion have instead gone on merely delaying the inevitable.

While we should assume it impossibly easy to outrun a zombie; there are a number of zombie firms still favoured because of their size and position. This was particularly true with construction giant, Carillion, who, despite heavy debts, was still awarded contracts right up until its eventual collapse last month.

When you are a business owner you must take responsibility for not only your own company but all those you do business with. Since the collapse of Carillion, the supply chain has looked dangerously vulnerable; with small businesses bullied into excusing late payment. To ensure neither your suppliers and customers are trading beyond their means, you must keep a keen eye on them. Credit reports should be filled out and their every step monitored, and you must not hesitate when that first invoice is overdue. Don’t give them time to consider an excuse, or worse; liquidation.

At the Credit Protection Association, we provide our members with credit application forms, credit reports, and monitoring software to ensure every move the customer makes is accounted for. We also encourage all our members to act early. If you are doing business with a zombie firm, don’t let them take the easy way out, as you won’t get paid if they go into liquidation. Zombies may not be affected by a silver bullet or a stake through the heart, but a prompt CPA letter or County Court Judgement might just do the trick.

If you think you are in danger of joining the zombie ranks, don’t despair. If you are struggling with your cash flow and concerned for your business’ prospects, come to CPA first before you consider liquidation. We will recover bad debt, chase late payers, and might even leave you more alive than ever!