THE number of “‘zombie’” businesses in the North of England has soared since the end of last year, a new report shows.

Figures from insolvency trade body R3 show that since November 2013, the number of regional firms only paying only the interest on their debts has jumped from 8,000 to 55,000.

This reflects the national trend which saw an increase from 103,000 to 154,000 – - the highest number of businesses in this position in 18 months.

Experts believe the figures the rise is due to late payment and over-trading problems associated with economic recovery.

“‘Zombie businesses”’ emerged after the 2009 recession when thousands of businesses that might have been expected to fail were kept afloat by a combination of low interest rates, lenient creditors, and a sluggish recovery.

Chris Wood, Yorkshire R3 vice chairman and partner at Clough Corporate Solutions in Cleckheaton, said: “The first flush of growth generated plenty of cash for businesses but now some are experiencing the side effects of growth too. Over-trading and late payment can easily put businesses with bulging order books in a position where cash flow becomes a major headache.

“Businesses will get into trouble if they’re trying to run before they can walk and don’t get paid quickly enough for the work they’re doing. Access to new finance is still tight so businesses low on cash have limited options to give themselves some breathing room.

“Making minimum payments on debts or renegotiating payment terms with creditors can free up some extra cash and buy some time but a , but it’s not a long-term solution healthy cash flow is critical.”

RThe research shows that 39,000 Northern businesses are currently re-negotiating payment terms with their creditors.

Mr Wood added: “An improving economy will have pulled businesses back from the very edge, but thousands of businesses are still in a potentially difficult situation.

“Just paying the interest on debts or constantly re-negotiating with creditors could leave businesses in limbo: they will be in business but with little chance of growth, like the archetypal” ‘zombie”’ company.”

“Once interest rates rise and sustained economic growth encourages creditors to get tougher, even these two options will be tricky.

“Whereas the original “‘zombie businesses”’ have had the benefit of years of low interest rates and lenient creditors, those conditions are probably coming to an end.”

Around 31,000 Northern businesses say they would not be able to repay their debts if there was a small rise in interest rates, while 18,000 said they struggle to pay their debts when they fall due.