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Firms squeeze bad payers to ease cash flow

Small businesses are charging more interest and late payment penalties on bad payers than ever before due to the recession squeezing their cash flow; according to a report from debt recovery law firm Lovetts.

The study claims firms are still unwilling to charge late payment interest for fear of losing customers – however more businesses are coming round to the idea good customers pay their bills on time and in full. Lovetts says late payment interest is not charged as often as many businesses could – but the number of small businesses charging the penalty has increased 114% in the second quarter of 2009 compared with the same period in 2008.

The amount of late payment interest collected by businesses has risen 37% year-on-year.

Charles Wilson, Lovetts chairman said: "While these figures are hugely encouraging, Late Payment Legislation is still not used as much as it could be, nor are businesses recovering the compensation to which they are entitled. The reluctance to apply LPI may be blamed on various factors, not least the delicate balancing act of maintaining good relationships with customers whilst being firm about payment terms. 

"Any tool to help an invoice get up the priority list for payment has got to be exploited and Late Payment Legislation is both clear and easy to use. With applicable interest rates at 8% over Bank of England Base Rate (at the previous 31st December or 30th June) and a minimum charge of £40.00 per invoice, it's a powerful incentive for businesses to pay-up." 

The most detailed research into late-payment issues, was highlighted by Barclays Bank earlier this year, and showed that small and medium-sized businesses are owed more than £10bn by suppliers or customers failing to pay within the standard 30-day invoice period, an increase of £1.7bn on last year.

The worst offenders include big names like brewer Carling, Amazon; builders’ merchants Jewson and food firm Bernard Matthews.

The Federation of Small Businesses also claims late payment affecting cash flow led to 4,000 businesses folding last year.

Late payment interest is charged at 8% over Bank of England base rate.


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