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CASH FLOW TIGHT ROPE; It drives you up the wall. But worse, late payment could drive you to the wall. MAGNUS GARDHAM reports on a law change which could help small firms recover what's due to them.

Byline: Magnus Gardham

ACROSS the UK, 10,000 firms go to the wall each year because they are not paid quickly enough.

The figure, from the Forum of Private Business, is a depressing one for small business people.

In a world where cashflow is king, they can only wait for so long to be paid for goods or services they have provided.

And the high failure rate from late payment shows how easy it can be to go under through no fault of their own product or planning.

As long as four years ago, steps were taken to give small businesses more powers.

They came in the form of the Government's Late Payment of Commercial Debts (Interest) Act.

It allowed small businesses to charge interest at eight per cent over and above the base rate on debts due from other small firms, big businesses or public sector bodies.

It also allowed them to claim "reasonable" debt recovery costs and the right to challenge contracts which attempt to wriggle out of late payment penalties.

But it had little immediate impact.

Earlier this year, small businesses were still taking 59.9 days on average to settle their bills - two days longer than in 1998.

Big business had an even worse record.

Larger firms were taking 77.9 days to pay up - almost six full days longer than 1998.

But last month the legislation was beefed up to give larger firms the same late payment rights.

The move will put small firms under greater pressure to settle their own debts on time. But experts believe that only with cut-throat corporate players in on the act can the legislation finally begin to challenge the "late payment culture" which dogs British business.

Part of the problem up to now, says Steve Kilmister, managing director of credit check company Experian's business information division, is that late payments have put many small firms in a quandry.

He said: "Many small and medium-sized companies are aware that they have a legal right to demand payment, yet are very reluctant to use these powers because of the fear that they may lose a valuable big customer. The inequality of the business relationship means that smaller companies often accept late payment from their large customers as a fact of life.

"But it is this very acceptance of the late payment culture and long payment delays that can and does drive some companies to the wall.

"However, this doesn't have to be the case.

"Suppliers have up to six years to make a claim for interest against late payment and are entitled to claim interest after they have stopped supplying the customer.

"In these cases, when companies have no relationship to jeopardise, companies may be more prepared to exercise their rights and payments times may fall as a result."

Last month's law change will not only benefit small firms, of course.

It is early days, but the evidence is that larger firms are already taking a no- more-Mr- Nice-Guy approach. The rest will follow their lead.

Steve Kilmister added: "Evidence from other countries such as Sweden who have introduced similar legislation indicates that the legislation's teeth will now begin to bite as small and medium- sized companies take a lead from larger companies."

The reaction from the small business world has been positive.

Nick Goulding, chief executive of the Forum of Private Business and chairman of the Better Payment Practice Group, said: "We should see a significant impact from the legislation over the next year.

"It will take time, however, to change the imbedded culture of late payment, so businesses should continue to look at their own credit management practices to ensure they collect debt efficiently and are not leaving themselves open to sanctions under the Act."
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Title Annotation:Scotland Means Business
Publication:Daily Record (Glasgow, Scotland)
Date:Sep 12, 2002
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