Small firms are not charging late payers interest despite legislation which now allows them to do so.

Much hype surrounded the introduction of the Late Payment of Commercial Debts Act last November, with the Government claiming it would change the payment culture.

However, one year on, it looks like being a very damp squib, says Nicholas Poole, partner with Blake Lapthorn solicitors.

As head of the firm's debt recovery unit, Mr Poole has seen his worries about small companies not using the Act for fear of alienating large clients come true.

In the UK, bills take an average of 46 days to settle. The Act was intended to speed this up, by giving small businesses the legal right to charge their customers interest on late payment of invoices.

Although they could already make provision for payment of interest in their terms of business, many small businesses were reluctant to do so.

Mr Poole said: "The Act was intended as a wake-up call to larger organisations, who were often the worst offenders in terms of delaying payment. They knew they could get away with it, because they had the better bargaining position.

"However, so far we have seen no evidence of the Act being used, and it has done little to change the culture of late payment. Small businesses appear as reluctant to invoke it, for fear of offending important customers, as they were to make their own provisions."

At present, legislation only allows for small companies to claim interest from large firms. From November 2000, small companies will be able to claim from other small firms and, from November 2002, all businesses will be able to claim interest.

Mr Poole added: "Small businesses should look closely at using the Act as it was intended. After all, it's no good being careful not to offend large customers if your company then folds through bad cashflow."

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