MORE “zombie” companies could collapse in 2026 – bringing with it higher unemployment and potentially taking “living” firms down with them if they are owed money. One business owner said her aged debtor report was a classic red flag, as the average days monies are owed has increased by almost 350%.
“Zombie” means businesses that are still breathing, but only just, because they are not making enough profit to cope with higher costs.
The Resolution Foundation, a think tank, points to a nasty mix: high interest rates, expensive energy, and rising minimum wages.
It also says we might see a “turning point” where weaker firms fall away and productivity improves, but the short-term hit is job losses and disruption.
Unemployment was already reported at 5.1% in October 2025, and business confidence has been shaky, with firms reluctant to hire and pulling back investment.
Ruth Curtice, chief executive of the Resolution Foundation, said: “There are early and encouraging signs of a mild zombie apocalypse, where higher interest rates and minimum wages have combined to kill off struggling firms and leave the door open for new, more productive ones to replace them.
“But while this is good news for our medium-term economic prospects, the short-term impact could be job displacement and higher unemployment. Policymakers will need to redouble efforts to address this problem.”
This is cashflow contagion
Kate Underwood, Founder at Southampton-based Kate Underwood HR and Training, gave some tips to small businesses relying on “zombie firms”.
She added: “Zombie firms won’t just die quietly — they’ll grab your cash and leg it. This is cashflow contagion. One customer starts wobbling and suddenly you’re sat at your kitchen table, staring at the bank app, wondering how you’re meant to pay wages when your ‘big client’ has gone weirdly silent.
“First it’s ‘Can we do 60 days?’ then it’s ‘We’re just querying this invoice…’ then it’s tumbleweed. And here’s the maddening bit: they’ll keep ordering while they’re skint. So you’re funding their slow-motion collapse. Cheers for that.
“If that wobble means you’re thinking about cutting heads, don’t go full panic mode. Redundancy is a legal process, not a stressful Tuesday. Get it wrong and the tribunal bill will finish you off. Tip: pick your top five customers/suppliers. Check how they’re paying. Tighten terms. Chase early. If your gut says ‘this feels off’, listen to it.”
Desperate businesses don’t implement AI properly
Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said AI will kill off many “zombie” businesses.
She continued: “Zombie companies will be finished off by desperate automation and the fines that follow. When firms are haemorrhaging cash, the siren call of ‘replace a £30k salary with a £20 monthly subscription’ becomes irresistible. That’s when the real danger starts, namely rushed automation that is noncompliant and poorly governed.
“Desperate businesses don’t implement AI properly. They don’t audit data handling. They don’t check compliance. They just plug the subscription in and hope nobody notices the customer data leaking, the algorithmic bias in hiring decisions, or the automated advice that breaches professional standards.
“An ICO fine for botched data handling doesn’t save a struggling company, it finishes them off. A regulatory body striking off the right to practice because AI gave dodgy advice? Game over.
“Zombies trying to automate their way out of trouble, cutting compliance corners because they’re too broke to do things properly, means more good firms won’t get paid when they fail.”
More pressure than a lot of small businesses can bear
Debbie Porter, Managing Director at Bakewell-based Destination Digital Marketing, said small businesses are under strain.
She added: “My aged debtor report in my accounting software tells you all you need to know about the state of the economy right now. Last financial year the average debtor days report was at 37 days, and this financial year it is 168 days – an increase of almost 350%.
“I keep a keen watching eye on late payments and, as a cautious operator, I always ensure I have cash in reserves to keep the business flowing so can weather this to a certain extent.
“The abundance of increases across the board in the form of wage lifts caused by 20% increases in the minimum wage rate, the attendant National Insurance (NI) and pension contributions that also rise in relation to wages and then a hike in employers NI contributions have caused more pressure than a lot of small businesses can bear.
“If the government’s strategy is to have a clear-out of zombie businesses, then that strategy is working, but they have to ask themselves if a zombie business owner is worse than another unemployed person.”
Too much for a small retailer to cope
Marc Smith, Owner at Tamworth-based Smith & Ellis Butchers, said one of his businesses is now in “zombie” territory.
He continued: “We run two retail businesses, one of which is now in ‘zombie’ territory. We are retail butchers so are always under pressure due to supermarket convenience, loss leaders and the perception among consumers that butchers are expensive (even though we are almost always better value). Despite those pressures, we were managing to make the smaller business work – until the last couple of years.
“What is pushing us towards the edge are energy bills that are simply too high, wages that are climbing quicker than we are able to increase prices, NI and pension contributions rising in relation to wages and then a hike in NI.
“It’s simply too much for a small retailer to cope. What would help right now? Small shops could be given some sort of a discount on NI and support for energy. Without those, we will probably be another statistic.”
Colin Crooks MBE, CEO at Intentionality, said small businesses need to take responsibility.
He added: “Stop being polite about cashflow. Get paid upfront or get burned. Too many small businesses treat cashflow like an afterthought – chasing invoices, accepting extended terms without pushback, hoping big logos mean reliable payers. They don’t.
“The fix isn’t complicated: bake payment terms into every conversation from day one. Deposit upfront. Progress payments. Direct debit. If a client baulks at paying promptly, that’s a red flag. Check their financial health. And when they ask to stretch terms? Say no.
“With more collapses forecast for 2026 and unemployment at 5.1%, this isn’t paranoia – it’s survival. The companies that make it through will be the ones who stop playing nice and start protecting their cash like it’s the air they breathe. Because it is.”
Photo by Simon Wijers on Unsplash
