More small businesses suffering from late payments

A survey of FPB members has found that 82% of businesses are seeing an increase in the number of customers that are paying late. And with 83% of businesses stating that late payment will have either ‘serious' or ‘very serious' consequences for their businesses, the problem could be severe.

"Protecting cash flow, which is the lifeblood of any small business, has become even more important because of the credit crunch," said the FPB's Chief Executive, Phil Orford.

"The hard-won statutory right to interest (SRI), which was brought in by the Late Payment of Commercial Debts (Interest) Act 1998, should protect small firms from payment problems, but enforcing it has proved to be extremely difficult. The FPB is concerned that small firms often have no choice but to pass up their right to hold late-payers to account because they fear they will then be passed over for future business."

The Late Payment of Commercial Debts Act followed an EU directive allowing firms to add interest charges in cases of late payment. It allows businesses to charge the Bank of England base rate plus 8%. With base rates currently at 5% - that is a total of 13%. However, many small businesses do not believe the existing rules offer sufficient protection.

The FPB's, Philip Moody, added, "Although the Act was initially successful in reducing small firms' debts, 10 years on, the problem of late payment is worsening."

"One aspect is bigger companies changing their terms and conditions, such as extending payment periods from 30 to 60 days – or even longer. Small firms rarely have any choice but to go along with the terms dictated to them," said Mr Moody. "The only way around this would be to charge interest automatically after the first 30 days."

If late payment is a problem for your business, these guides can help you;

• 7 ways to get paid on time, every time
• Business Debt Recovery - Overview for small businesses
• Invoice Finance and Factoring for small businesses