NORTHERN businesses are showing greater signs of distress, says a Kirklees insolvency expert with more firms making pay cuts and reporting cash flow difficulties

Figures from insolvency trade body R3 show that 31% of companies in the north of England, including West Yorkshire, have introduced pay cuts compared with 16% in the Midlands and 20% in southern England.

Some 31% of firms in the north also owned up to cash flow problems against 19% in the Midlands and 22% in the south. Some 24% of firms in the north used a maximum overdraft facility compared with 13% in the Midlands and 14% in the south.

Equally worrying, 26% of companies in the north said they had lost regular customers against 15% for the rest of the country.

The survey showed that one in four UK businesses are concerned about their debts with small businesses being particularly vulnerable. The biggest concern featured bank loans and other finance debt.

Chris Wood, Yorkshire R3 committee member and partner at Clough Corporate Solutions in Cleckheaton, said: An alarming minority of the business community, particularly in the north, are struggling to address their financial woes.

If these distressed businesses continue along this downward trend they may lose control of their mounting debt, which will push them into insolvency in the coming quarter.

These businesses are allowing their debts to manifest instead of being able to pay them off.

Things arent improving for these businesses which is of real concern at a time when monetary and fiscal policy should be benefiting businesses.

These businesses are likely to fall on hard times when interest rates inevitably rise, making it more difficult to service their debt. Mr Wood said: Cash flow difficulties are particularly severe in the north and these, coupled with debt concern, paint a worrying picture for small businesses.

Results from the barometer in December, 2010, revealed high levels of distress and debt concern. We assume this is due to the adverse weather conditions and expected businesses to have a bleak outlook during those difficult trading conditions.

The fact that some of those results have been compounded or increased this quarter is alarming. Businesses havent just hit a bump in the road, but have sustained financial problems. These could be zombie businesses that are unviable. When changes to monetary and fiscal policy become less favourable they are likely to go insolvent.