The new power was introduced as part of a package of measures to combat late payment that came into force last week. It’s estimated that small businesses are owed £7bn in late paid bills at any one time and that approximately 10,000 UK businesses fail each year as a consequence of late payment.
A survey conducted by the Credit Management Research Centre found that 32% of reasons given for not paying on time are excuses made to disguise intentional late payment. Among the most bizarre excuses for not paying on time included: ‘I cannot make a payment until the planets are aligned, which is only twice a year’; ‘we’re in the middle of an armed robbery’ and ‘All the names are put into a hat and pulled out. If yours is pulled out you will get paid – if not, then you stay in the hat until next week.’
Small businesses are already allowed to charge interest on late paid bills but critics have said this does not go far enough. But the government hopes the new sanction will do more to help small businesses that are often held to ransom by late-paying larger companies.
As well as extending the late payment rules to businesses of all sizes and the public sector, the new package of measures will also give small companies the power to ask an appropriate representative body to challenge contracts that do not provide them with a substantial remedy for late payment. And it also ensures the interest rate for late payment will be fixed for a six-month period – rather than fluctuating monthly as at present.
Small business minister Nigel Griffiths said: ‘The summer holiday season often sees many creditors being fobbed off with poor excuses. The right to charge for the wasted efforts spent chasing unpaid bills should make slack payers think twice before trying to stall for time.’
Nick Goulding, chief executive of the Forum of Private Business and chairman of the Better Payment Practice Group, welcomed the legislation. He said: ‘This legislation is designed as a deterrent and must be used as part of standard business practices and credit management techniques. As 10,000 UK businesses go under each year owing to late payment, this is an opportunity to change the way Britain does business in the future.’
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