Late payment law change revealed as a damp squib

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Laws introduced by the Government to help small businesses suffering from late payments have been exposed as a failure.

The legislation, introduced in November 1999 by then Trade and Industry Secretary Stephen Byers and which gave small companies the right to demand interest for late payments, isn't working and businesses are actually taking longer to pay their invoices, says information solutions company Experian.

"The Government made exactly the right move in introducing the legislation for late payment, sending a clear signal to all types of business that paying late is unacceptable.

"But the penalty for not paying on time is still not strict enough," said an Experian spokesman.

Experian's latest survey says the average time companies take to pay their bills has increased to 60.34 days, from a total of 59.63 days over the past six months.

"Many companies in the UK are delaying payment of their invoices as a means of bolstering their cash flow as their profits are hit by the strong pound and deteriorating economic conditions," Experian said.

Small businesses still pay most promptly – 58.6 days on average, which is 0.3 days more than six months earlier. Large companies are generally taking 1.5 days longer than the previous six months, while the length of time taken to pay by medium-sized companies has increased the most.

Small businesses are the most prompt payers because, Experian says, it is easier for larger organisations to demand payment more promptly, partly because they are more likely to have the financial clout to start legal proceedings or withhold supplies.

The company also says manysmall firms do not claim the interest they are owed. "So far there has been little evidence that companies are willing to exercise their rights against their customers. This could be a function of the state of the economy, with companies afraid to lose any business, regardless of its size," said Steve Kilmister, managing director of Experian's business information division.

Experian, however, expects to see more companies claiming interest in the future because legislation has been introduced to allow small businesses to claim interest from other small firms and not just the larger ones.

Experian, which is owned by retailer GUS, surveyed 150,000 companies of all sizes and across all industry sectors.