Small businesses are in danger of failing because of changes to the Late Payment Act.

The Association of Chartered Certified Accountants (ACCA) has warned the legislation, introduced in 1998 to ease the burden of late payments on small companies, could backfire.

Changes due to be implemented in November could threaten the success of thousands of small businesses.

At present, the Act allows small companies to charge larger companies interest at eight per cent above the basic rate on overdue invoices.

In November, this right will be extend-ed so all businesses can charge interest on all unpaid debts.

Robin Jarvis, head of ACCA's small business unit, said: "A significant number of businesses fail each year due to late payment.

"So far, many small businesses have been reluctant to use their rights to deal with persistently late paying clients for fear of driving away business.

"Now they could be faced with a situation of double jeopardy because, while they may not take advantage of the Act, it is likely larger companies will.

"Small businesses can avoid the impact of this legislation by adopting a culture of better payment practice."

He suggested firms could avoid having to resort to the legislation by tightening up their accounting practices.

He said "They need to invoice clients immediately and accurately, as errors can cause grounds for non-payment.

"Agree in writing with customers specific terms of trade to avoid discrepancies and ensure payment terms are stated clearly on invoices with payment dates in bold text.

"They should also use a set company policy for chasing debt and run credit checks on new clients and existing clients."