Small firms are missing out financially by failing to enforce interest payments on late payers and to effectively chase up outstanding invoices, credit agency Graydon has warned.

Research by the organisation claims that just 4% of companies regularly charge interest on late payments, which they are entitled to do under the Late Payment of Commercial Debts Act 1998. A further 44% only do so occasionally, meaning the majority of small firms never charge interest.

The research also suggested that the main reason for failing to charge interest was not due to fears of upsetting customers but because the company itself had not developed a culture where this is the norm.

Four out of 10 firms said it was not their company’s policy to charge interests on monies owed, and 25% said it created more administrative work. Almost one in five (19%) said they did not enforce the legislation because it was not customary in their industry while just 9% were worried about upsetting the customer and 7% worried about losing their business in the future.

“Most credit industry analysts, including me, suspected that it was fear of losing or upsetting customers that prevented suppliers from charging for late payment,” said Martin Williams, managing director at Graydon.

“However, it would appear that many companies have still not embraced the idea of demanding their statutory rights to interest, despite it being almost five years since the last amendment to the 1998 Act became law.”

As well as charging interest to speed up the process of payment, there are other means of encouraging customers to pay up on time. “Doing credit checks, chasing payments by telephone rather than by letter and ensuring that the client has received the right service prior to a due payment date are all useful tips,” said Williams.

“But ensuring that your payment terms and conditions include your right to charge interest on late payments, and that these terms are agreed upfront by clients, will empower you still further,” he added.