Late payment law fails

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GOVERNMENT initiatives to combat late payers will be exposed as failures this week with the publication of research showing that UK companies are taking longer than ever to settle their bills.

A new law, introduced a year ago by the Department of Trade and Industry, allowed businesses to claim interest on overdue bills. But the evidence is that businesses are now taking two months on average to honour their debts.

The worst-performing sector is vehicle and equipment rental, where companies take 79 days on average to pay bills, according to a nationwide survey by Experian, a credit information group. The overall average payment time has edged up a day over the last year to 59 days.

The Confederation of British Industry has blamed the Government for failing to deal properly with payment problems and is calling for UK companies to take more notice of the negative effects late payment can have on business. "The CBI never believed that government legislation would solve the payment problem, and these figures suggest that we were right," said a spokesman.

The Government countered that its initiatives have not been given enough time. "You're not going to change a culture overnight," said a DTI spokeswoman. "At least we have put in the legislation, and I think that shows real commitment."

Late payments eat into a company's cash flow, forcing it to hang on to cash for as long as possible, thus passing the problem on to other firms. In many cases, late payments are responsible for otherwise-profitable companies going bust.

"Late payment is one of the most frustrating and potentially one of the most serious issues facing small business," said Peter Brooker, an Experian director. "There is a need to explain clearly to purchasers and suppliers why prompt payment is necessary."

Companies are also being urged to learn about their customers before they enter into deals. "Companies should make sure that they negotiate properly with clients before they strike a deal," Mr Brooker said. Trading terms and credit agreement periods should form a major part of the negotiation process.

"Unfortunately slow payment is just part of the culture for certain industries," he said. "The smaller end of the market in particular takes longer to pay because they don't have much working capital to play with."

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