Cash Flow - Life Blood of Business - In Business Summer 2002

01 July 2002

Cash flow is the life-blood of business and it was in recognition of that fact that in 1998 the Government introduced the Late Payment of Commercial Debts (Interest) Act.

The Act came into force on 1st November 1998 and initially provided that small businesses (those with less than 50 employees), would have a statutory right to claim interest from larger businesses (those with more than 50 employees and the Public Sector). The interest would be on accounts not paid within agreed credit periods at the rate of 8% above the base lending rate of the Bank of England where no contractual right to interest already exists.

On 1st November 2000 the scope of the Act was broadened to allow small businesses to claim interest from other small businesses.

On 1st November 2002 things will open out completely to allow large businesses and the Public Sector to claim interest from all businesses and from the public sector.

Although the Act was initially introduced to assist small businesses to improve their cash flow and to reduce the waiting time for payment of their outstanding invoices, figures suggest that it has not had the desired effect.

A survey of 150,000 companies carried out by one well known Credit Agency revealed that rather than the position improving since the introduction of the Act, the payment period had actually become slightly longer and small companies have been reluctant to enforce their rights.

We will not have to wait too long to find out whether large businesses will be more inclined to avail themselves of the opportunity to claim interest at this higher rate than small businesses.

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