Accountants claim late payment law 'has failed'

Legislation introduced by the government to help small businesses overcome the problem of late payment has failed to make an impact, it was claimed today.

Research conducted by a leading accountancy firm revealed that just 3 per cent of the UK’s small business owners had used the new late payment law against debtors. Of this small minority, a third claimed the law hadn’t helped them overcome the problem of bad debt.

Perhaps more worryingly, over half of those business owners questioned still hadn’t even heard of the Late Payment of Commercial Debts (Interest) Act. Updated last year, it enables businesses to charge up to 11.25 per cent on late payments from their customers.

Business groups welcomed the law at the time, but its impact appears to have been limited and late payment remains a threat to the survival of small and new businesses.

Andrew Burnham, partner at MacIntyre Hudson, believes the law has failed because it hasn’t helped small firms improve the cashflow problems that often result from late payment. He argues that small businesses need the money now not later with interest.

Commenting on the results of his company’s survey, Burnham said: “The legislation was introduced with the best intentions – to aid small businesses in combating late payers. However, it has had a minimal impact. Interest rates are unlikely to deter the serial late payer.”

Burham suggests, perhaps unsurprisingly for an accountant, that firms are more likely to discourage late payment by having clearly agreed terms with their clients and ensuring they have the resources and systems in place to chase down debtors.