New powers allowing small businesses to charge interest on unpaid bills could ruin relationships with suppliers, experts warned this week.
The much-heralded Late Commercial Debts Act, which comes into force on 1 November, gives small businesses the power to charge an interest rate of 8% on bills not paid in the contractually agreed time. For the first two years, the Act only applies to small companies – those with 50 full-time employees or fewer.
Ross Clarkson, marketing controller of Lloyds TSB subsidiary Alex Lawrie, urged small businesses to use their new powers but admitted companies were anxious not to offend established customers.
‘Businesses are more likely to use the Act on customers they don’t want to continue trading with,’ he said.
James Roberts, a partner in the technology and enterprise group at Arthur Andersen, added: ‘Businesses are reducing their suppliers. All things being equal, they’ll go with suppliers who don’t charge the extra interest.’
Gordon Raw, group financial controller for diary manufacturer Charles Letts & Co, questioned the effectiveness of the Act. ‘It might generate a bit of extra income, but it’s not sufficiently punitive for people to respond to it,’ he claimed.
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