Small firms charged up to stop the late show

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The Independent Online

This week, small businesses struggling to keep their income ahead of their outgoings will gain a new weapon in their armoury. From Wednesday, they will have the right to claim interest from other small firms if they are paid late.

This week, small businesses struggling to keep their income ahead of their outgoings will gain a new weapon in their armoury. From Wednesday, they will have the right to claim interest from other small firms if they are paid late.

Stuart Blake, at the Forum of Private Business, says this "second phase" of the 1998 Late Payment of Commercial Debts (Interest) Act is significant because it means small firms will be able to seek redress from the organisations with which they are most likely to be working. The first phase of the Act limited claims to those by small firms against large ones, defined as having an average of 50 employees over the previous 12 months. A third phase, due in 2002, will make the right to interest applicable to all sizes of company.

Mr Blake accepts that this week's development is "a double-edged sword" for small businesses in that it makes them liable to action as well as having a weapon to use against late payers. But he does not see this as a problem since the aim of the legislation is to change the culture of late payment.

It was in an attempt to speed the progress of change that the Better Payment Practice Group was set up in advance of the legislation. Curr- ently chaired by Stephen Alam- britis, head of parliamentary affairs at the Federation of Small Businesses, its aim is to improve the ethics of the UK business community through a variety of methods.

Promoting the existence of the legislation is one approach, and a study from the Credit Management Research Centre at Leeds University, to be published on Wednesday, is expected to show twice as many businesses using the Act as at this time last year.

But Mr Alambritis also points to other facets of the campaign. These include: support for the publication of tables showing payment performance in the public and private sectors; a Better Payment Practice Code, outlining the principles of good payment procedures, along with a logo for businesses that adopt the code; and an education programme, entitled "Collect the Cash", to help firms with late-payment problems.

Kate Beddington-Brown, assistant director general of the Institute of Credit Management, offers a number of self-help tips for small businesses that would prefer to avoid invoking the law. These are:

* Check a new customer's creditworthiness before drawing up a contract.

* Set strict credit limits.

* Prepare unambiguous con- tracts and/or terms of trading.

* Involve the sales force in negotiating the payment terms and ensuring that these are understood from the outset.

* Comply with procedures used by your customers' buying and accounts departments.

* Maintain close contact with your customers.

* Make regular credit checks on your existing customers.

* Refuse orders if a client has an unacceptable payment record.

* Ensure that all despatch notes and invoices are accurate and delivered to the right address at the right time.

* Send regular reminders and chase payment both by phone and by visits.

"Much of it looks blindingly obvious," says Ms Beddington-Brown. "But it is surprising how often the obvious is overlooked."

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