Concern among small firms about late payments is increasing despite imminent changes to the law to tackle the problem.

Next week, the Late Payment of Commercial Debts Act will make it possible for small businesses to charge interest on all late-paid bills and claim reasonable debt recovery costs.

The Government responded to the popularity of the legislation among small firms by bringing forward the operative date of the new law from November to August.

Organisations representing small and medium-sized enterprises, such as the Forum of Private Business, will have the right to challenge unfair contract terms used by purchasers, which may affect the ability to recover late payment interest.

The Better Payment Practice group is encouraging businesses to familiarise themselves with their new statutory rights.

It suggests firms update their credit management policies so customers are notified at the outset the legislation will be used if payment is late.

Group member Dominique Vaughan Williams said: "Late payment is a real headache for many businesses, as they are forced to waste considerable time and money chasing overdue invoices.

"We anticipate the new measures will provide compensation and support to these businesses and we urge them to take a few simple steps to ensure they don't deny themselves the benefits that will soon be available to them."

The group recommends the following wording in credit management documents: "We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to the agreed credit terms."

A report from Alliance and Leicester says 45 per cent of firms in the professional services sector put late payment from customers at the top of their list of concerns. The figure was up by 18 per cent last year.

Manufacturers and producers showed an increase from 28 per cent to 34 per cent while for retailers, the figure was up from 13 per cent to 16 per cent.

John Walker, policy chairman with the Federation of Small Businesses, said: "The figures suggest many small businesses will find the right to claim compensation useful.

"But the legislation should not be seen as the complete solution. It is just one of the tools that can be deployed as part of an active credit management system."

Alliance and Leicester's head of marketing Gareth Williams said: "Previous measures to deal with the problem of late payments have met with limited success, judging by what small businesses have been telling us.

"Many more organisations will be able to apply these new regulations and hopefully be much more successful at persuading companies not to pay their suppliers late."

The tax system was the second greatest concern for small businesses, according to the survey, up from 14 per cent to 20 per cent.

Local competition and crime were both down one per cent, cited by 13 per cent and ten per cent of firms respectively.