Small businesses are refusing to charge interest on late paid invoices for fear of damaging customer relations, new research has revealed today.
A poll conducted by Begbies Traynor, business rescue and restructuring specialists, found that only 4% of small or medium sized enterprises invoke their legal right to add 8% interest above basic rate to invoices not paid on time.
The Late Payments of Commercial Debts Act applies to all businesses, but three out of four surveyed said that the legislation was impractical since using it risked souring relationships with clients and losing them to competitors.
Small businesses are often dependent on major customers for a large percentage of their total turnover. Nearly 60% had a major client representing over 30% of their income and few were willing to pressurise them for payment, the research revealed.
“The Late Payment of Commercial Debts Act, however well meaning, is too blunt a mechanism,” commented Mark Fry, south-east managing partner of Begbies Traynor.
“It may well suit monopolies or very large firms, but generally lacks the finesse necessary to deal with the finer points of customer relationship management,” he added.
The findings come in the wake of recent research from Bibby Financial Services which estimated the cost of late payments to be £3.6bn a year for small firms.
Despite this, the poll suggests that small firms are not adequately protecting themselves, with 60% not performing any customer credit checks before going into business with clients.
© Crimson Business Ltd. 2006
