The government faced a barrage of criticism from industry this week over its late payment bill which is due to become law by the autumn.
The long-awaited Late Payment of Commercial Debts Act will give businesses the authority to charge interest of 8% on bills not paid in the contractually agreed time. Small firms minister Barbara Roche said: ‘Paying late is bad business practice and the government is working to change the UK’s payment culture.’
The legislation will be introduced in three stages. During stage one, only small businesses – defined as 50 full-time employees or fewer – will have the right to levy interest on overdue payments from large companies.
After two years, SMEs will be free to charge all enterprises in the public sector and, two years later, any company will be able to charge for overdue payments.
While broadly welcoming the government initiative, a spokesman for the Federation of Small Businesses said penalty interest rates would not transform the behaviour of large companies. ‘In large companies, the interest rate charged is immaterial because the finance director gets a brownie point if he withholds payment,’ he said.
Zahir Fazal, an audit partner at Horwath Clark Whitehill, said: ‘We still back the findings of a Kingston University study which said late payment of invoices has been exaggerated.’
A Department of Trade and Industry spokesman said that a Midland Bank survey, due out later this month, showed a 70% majority of business in favour of the late payment law.
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