Late payment legislation has failed, say business owners

• Only 43 per cent of UK’s owner managers are aware of late payment legislation
• Only 3 per cent have used the legislation to tackle debtors

Delicate issue: Andrew Burnham

Legislation introduced by the Government to help small businesses overcome the problem of late payment has failed to make an impact, according to a survey by chartered accountants and business advisers MacIntyre Hudson. The research reveals that under half (43 per cent) of the UK’s owner managers are even aware of The Late Payment of Commercial Debts (Interest) Act, which enables businesses to charge interest of 11.25 per cent on late payments from their customers. Only a tiny number - 3 per cent - have actually used this legislation against their debtors. Even fewer - 2 per cent - say that it has helped them overcome the problem of bad debt. The biggest flaw in the law, according to business owners, is that it doesn’t actually solve cashflow problems. Nearly a quarter – 23 per cent – state that they need the money now rather than getting it later with interest. A further 15 per cent are worried about upsetting their clients by imposing interest charges on them, and 13 per cent claim that use of the legislation involves too much hassle. Andrew Burnham, principal at MacIntyre Hudson, commented on the findings: “Cashflow is vital to a small business and late payment can be a major problem, sometimes with serious or fatal consequences. However, it can be a very delicate issue for the owner manager to tackle, especially when the debtors are large companies who form a large proportion of their revenue.” He continued: “The legislation was introduced with the best of intentions – to aid small business in combating late payers. However in the six years since it was introduced, it has had a minimal impact. A small business owed a large sum generally needs the money now rather than later with interest. And interest charges are unlikely to deter the serial late payer. "The most effective way for small businesses to overcome the problems of late payment is to have clearly agreed terms with their clients and ensure they have the resources and systems in place to chase down debtors and recover payment.”