Companies will be allowed to charge interest on late payments from August 8, three months earlier than expected.

The ruling was introduced by the European Commission two years ago, initially giving small firms a statutory right to claim interest from large businesses and the public sector.

In November 2000, the second phase allowed small businesses the additional right to claim interest from other small businesses on debts incurred under contracts agreed after that date.

The third and final phase was due to be implemented in November 2002, to allow all businesses and the public sector the right to claim interest from all other businesses and the public sector.

The EC has brought forward the final phase to give all firms the right to charge interest at a rate of seven per cent above bank rate, which is currently four per cent in the UK.

The move was criticised by Worthing-based credit management consultant Derek Scott who said the legislation would make no difference because small firms feared bullying and reprisals if they asserted their new rights against large customers.

He said: "Legislation has made no progress and is going nowhere."

According to Mr Scott, some of the biggest companies make use of delayed payments in order to improve their own balance sheets while small firms keep quiet if they want more business.

He said: "It doesn't work now and never will. Commercial clout will always rule."

But the legislation is backed by the Better Payment Practice Group.

Member professor Nick Wilson said: "There is clearly a growing trend among businesses to take advantage of the legislation as a useful credit management tool.

"Rather than being used as a last resort measure when an invoice is late, the true value of the legislation is its ability to give extra bite to collection procedures."