Second Phase Of Late Payment Law To Give Added Bite

Research released today (30th October) shows strong support for the second phase of the Late Payment of Commercial Debts (Interest) Act 1998, which gives small businesses the right to charge other small businesses statutory interest on late paid invoices. A poll conducted by the Credit Management Research Centre (CMRC) at the University of Leeds, reveals that almost one in five small businesses (19 per cent) believe that the second phase will improve the payment culture in the UK.

The second phase of the Late Payment of the Commercial Debt (Interest) Act 1998 becomes effective on November 1st, giving small businesses the statutory right to claim interest from other small businesses on debts incurred under future contracts. General awareness of the second phase of legislation is high, with four out of five small businesses (80 per cent) stating that they are aware of the second phase provisions.

It is particularly encouraging that 18 per cent of the businesses polled say they plan to use the legislation to charge interest to other small firms. Additionally, more than one in ten firms (13 per cent) believe their suppliers will charge them interest.

"Our research shows that a significant number of small firms will use the second phase of legislation and that they believe it is a useful tool in promoting a better payment culture," comments Professor Nick Wilson, head of the CMRC and member of the Better Payment Practice Group (BPPG).

Stephen Alambritis of the Federation of Small Businesses comments: "For many small businesses the problem of unpaid invoices also exists between themselves and other small businesses. For all businesses, the effectiveness of the legislation lies in its ability to give added bite to credit management techniques and not as a last resort measure when a business is faced with late paid invoices."

In addition to extending a small firm’s right to claim interest, the second phase will also expose small firms who do not pay on time. With this in mind, the BPPG is encouraging small businesses to make changes to their credit management techniques and has issued the following guidelines for both suppliers and purchasers to ensure that they not only get paid on time but pay on time:

• Make the terms of trade clear - agree them before providing goods or services.
• Get a signed delivery note for all goods and send all invoices on time.
• Check the payment records of prospective customers through league tables, status agency reports, bank or trade references at least twice a year.
Don’t agree to plans taking more than six months to clear a debt.
Watch for sudden changes in orders - a big increase could mean other suppliers have stopped supplying.
Take action to collect debts and use the tools at your disposal. Take advantage of the Late Payment of Commercial Debts (Interest) Act 1998 as part of your standard business practices and credit management techniques. In much the same way as a supplier reminds purchasers that payment is due within a specified time limit, the supplier should also remind them that interest will be charged on overdue invoices under the Act. Consider giving written and verbal notice in the following way:

"We understand and will exercise our statutory right to interest under the Late Payment of Commercial Debts (Interest) Act 1998 if we are not paid according to agreed credit terms."
• Monitor your payment system regularly.
• Pay all undisputed bills on the due date.
• Issue guidance notes to help your suppliers understand your payment procedures.
• Find out who authorises payment and establish a good working relationship with them.

The new User’s Guide to the Late Payment of Commercial Debts (Interest) Act is available from the DTI Publications Unit on 0870 150 2500