IoD backs law to charge interest on late payment

THE INSTITUTE of Directors has added its voice to those calling for a statutory right to interest on overdue trade debt, writes Paul Durman.

The institute believes that a statutory right to interest would bring about a change in the behaviour of firms, particularly those large enough to use their commercial power to keep suppliers waiting for payment. It wants the new law to be binding on the public sector where payment practices are often poor.

In a submission to the Department of Trade and Industry the institute says existing court procedures make recovery of debt difficult and often impractical.

'If payments are persistently made, for example, 20 days after they become due, this is sufficient to cause real cash flow difficulties for suppliers but not long enough for legal action to be sensible course. Debtors can therefore pay late, habitually, with impunity.'

The institute is dismissive of the Government's attempt to encourage firms to adhere to a code of good practice and strongly opposed to establishing a British Standard on prompt payment which would create unnecessary paperwork.